The following article was published in three parts in California Business Law Practitioner, in the Fall 2008, Winter 2009, and Spring 2009 issues, published by the California Continuing Education of the Bar (“CEB”). Elements of the article were subsequently included in the two volume treatise “Business Succession Planning,” also published by CEB, which provides in depth and expanded coverage of the subjects addressed below. Although the article was written for an audience of business lawyers, non-lawyers with backgrounds in business and finance should have no difficulty in understanding the concepts and methods described
The typical business owner’s goal is to exit his or her business with the most wealth on the most favorable tax terms. However, this requires a coordinated team effort. The ideal succession planning team includes an experienced professional cadre of attorney, accountant, financial planner and life insurance agent, as well as the business owner and his or her heirs. Each of the team members has an important role to play.
To Cut Estate Taxes Later Start Giving Your Business to Your Beneficiaries Now || Smart business owners can use the $10,000 annual gift tax exclusion as a highly effective way to pass along substantial blocks of equity in their businesses to their heirs and beneficiaries with no estate or gift tax at all. As is true in almost every tax planning area, the sooner you start to do this, the greater the results that can be obtained. This is an excellent tax-saving concept, especially if it is used early and often during the formative years of a business’ development.
Turn on the Heir Conditioning for Family Business Survival || For an orderly transition to succeed in a typical family business, you, as the business owner, should begin an immediate program of heir conditioning — involving your heirs in succession planning.
What You Don’t Know About Your Business' Value Can Be Costly || In some cases, ignorance is bliss. However, when a business owner doesn’t know the true value of his or her business, there is little bliss involved. Many business owners have no idea of the current market value of their business, which usually is the lion’s share of their net worth. This can be a costly mistake when the time comes for them to reduce their day-to-day involvement in the business.
Why It’s Normal for You to Resist Succession Planning || The biggest obstacle to the continued future success of most smaller businesses is the owner’s inability or unwillingness to plan for his or her eventual replacement. It’s the most natural thing in the world for entrepreneurs to avoid even thinking about leaving the business you started and nurtured.