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Financial Planning > Trusts and Estates > Estate Planning

Estate planning is not succession planning

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Estate planning consists in part of deciding how property should be distributed at death. Succession planning focuses on decisions about the form of ownership and the organization and operation of the business, including the eventual transfer of the business on to the next generation, third party buyer or group of employees. Don?? 1/2 t confuse the role and value of a will with the importance of effective succession planning. A will is not an effective substitute for a well-written succession plan.

Another key distinction is the difference between ownership succession and management succession. These two important concepts can be separated for the purposes of succession and transition planning. Agreements can be put in place which separate how the stock or assets of the business will be owned, which is different than how the stock or assets will be managed. Ownership involves the property rights inherent in being an equity holder in the business, such as voting on major decisions and a pro rata share of dividends and distribution. However, day-to-day operation, control and accountability for the management of the business can be delegated by contract to those most capable of understanding and running the business.

The bottom line is that succession planning is a process which involves many steps, including (i) acceptance of the task; (ii) building consensus; (iii) choosing the proper candidates, options and strategies; (iv) clearly defining roles; and (v) monitoring the plan to ensure its effectiveness. There are multiple strategies available to you to provide for a smooth and orderly transition. They include:

  • Transferring ownership to your children or other family members.
  • Sale of your equity to remaining co-founder(s).
  • Sale of some or all of your equity to some or all of your employees.
  • Sale of some or all of your company (either a portion of the equity or a spin-off of a particular operating division of your business) to a competitor, strategic buyer, financial buyer, or other third party.
  • Sale of a significant portion of your company to the general public through an initial public offering.
  • Implementation of a creative growth and transition strategy such as franchising, licensing or joint ventures.

The determination of which strategy (or combination of strategies ?? 1/2 since certain strategies are not mutually exclusive) will work best for your business and set of circumstances will be influenced by a wide variety of factors, such as your business strategy and personal financial objectives; retirement needs; the availability of a viable family successor; the presence of co-founders or minority shareholders in your company; the pool of key employees who might be interested, capable and financially qualified for ownership opportunities; trends within your industry and the valuation of your company; the status of the financial markets; and other market factors.

For a list of tips for effective succession planning, go to

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