Business powers of attorney.

This allows another individual, or fiduciary, to act on the owner’s behalf in the event the owner becomes incapacitated due to an accident, age, or illness. While there are different kinds of powers of attorney, they broadly enable an individual to make specific financial and business-related decisions for someone else.

A will.

This allows for the distribution of business-related assets or benefits to specific heirs and beneficiaries.

A revocable living trust.

This can be considered a substitute for a will. Revocable living trusts allow an individual to transfer assets into the trust while they are still alive and to retain full control over the trust and its assets until death. But since these assets are held by the trust, they may be passed to heirs outside of the California probate process, substantially easing the pain of transition.

Trusts have an additional benefit: they are highly customizable, and the founder can set specific conditions about asset distribution and disbursement. If a small business owner wishes to place their business or business-related assets in a trust, they may make an heir’s right to succession contingent upon certain conditions or require that a company’s assets be used in a particular manner.

Grantor Retained Annuity Trusts

Another potential option for business succession is the grantor retained annuity trust (GRAT). Unlike a revocable living trust, a GRAT requires that the founder make a one-time, irrevocable transfer of property into the trust. The grantor may then receive a fixed amount of money—or annuity—for a specified number of years. After this time has elapsed, the trust’s remaining assets will be passed off to its designated beneficiaries.

GRATs can allow business owners to transfer their assets to family members or other loved ones while still benefiting from the company’s holdings in retirement. However, GRATs are more complex than other types of trusts and should only be formed after consulting an experienced estate and business planning attorney.

The Limited Liability Company

Other business owners may want to consider making their business a limited liability company (LLC). Forming an LLC can be beneficial in the context of business succession planning and estate planning. A business owner with an LLC can reduce taxes on the transfer of properties, assets, and gifts to loved ones. If a business owner creates an LLC long before their anticipated retirement, they may be able to transfer hundreds of thousands of dollars in penalty-free ownership shares to their intended successors, easing any eventual tax obligation.

Additionally, LLCs offer another tax incentive: they may be exempt from the compressed income tax rates often applied to trusts.


Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.