Whether you start a company from scratch or inherit a family-run business, it’s never too early to start planning for what happens if something unexpected happens to you, or for when you may want to retire or do something different. Business succession planning is a critical component of any estate plan. Trusts are often a key component of any family business continuity plan.
Continue reading, where we’ll share important details you need to know about these options and how they protect your North Carolina family business’s best interests now and for the future.
What Role Does a Succession Plan Play Within Business Continuity Generally?
Business continuity plans generally focus on the implementation of preventative measures that will ward off threats, including cyber attacks or natural disasters, that could compromise your business, and the identification of recovery strategies to deploy if harm occurs. Similarly, business succession planning is also a protective measure for your company.
Why Having a Plan in Place for Your Company’s Transfer of Leadership or Ownership Is Necessary
Succession planning serves the role of giving your company the best chances of continuing and thriving if something were to happen to its current leadership – you. The advance planning results in a roadmap to be implemented if you suffer a disabling injury, untimely death, or simply retire.
In addition to protecting your legacy for your family, having a plan in place matters for many more reasons For example:
- Employees: Your employees may worry about their jobs evaporating if something happens to you. Knowing that you have a plan in place may help with morale and productivity.
- Customers, vendors, investors, and partners: Having a plan in place can give them confidence in your operation, as it shows that you intend to keep your business going for the long term, and thus, they may be apt to do more business with you, offer more competitive rates, or consider supporting you in other ventures.
What Making a Succession Plan Entails
Business continuity planning like this may take different forms. You might begin by identifying a successor to lead your company in your absence. Compile a list of candidates and investigate their interest in being part of your succession plan. Should you be unable to identify any suitable candidates in-house, you’ll want to consider looking outside your operation.
Once you identify the right candidate to keep your business going, you must invest time in preparing them to eventually lead your business, and you must document your plans for this transfer. Even if your plan is for your business to be sold or for someone to “wind down” the business when you are no longer able to run it for any reason, it is important to plan for and document that as well. While there are a multitude of documents that may be involved in succession planning, we focus below on the benefits of trusts.
How Trusts Figure Into Business Succession
Trusts can bring many beneficial elements to your succession plan. Below are just some examples.
- Ensure Seamless Leadership: Life can be unpredictable. A trust allows you to pre-appoint a successor trustee who can take the reins immediately, minimizing disruption and keeping your business running smoothly. The trust document can also be drafted to address unforeseen situations, providing stability during uncertain times.
- Maintain Family Harmony: Family businesses can be a breeding ground for conflict, especially when it comes to inheritance. Trusts can specify how to distribute ownership or profits, mitigating disputes and fostering continued family involvement in the business, if that’s your desire.
- Minimize Taxes: Strategic use of trusts can help reduce your estate tax burden. For instance, irrevocable trusts remove assets from your taxable estate, potentially saving your heirs a significant amount of money. Consult with a tax advisor to explore the specific tax implications for your situation.
- Protect Your Legacy: Beyond financial benefits, trusts can be used to ensure your business continues to operate according to your values. A “purpose trust,” for example, prioritizes the mission and vision of the company over short-term gains. [link prior post about “Patagonia”]
- Provide Flexibility and Control: Trusts offer a high degree of customization. You can specify who benefits from the trust, when they receive distributions, and even include conditions for continued involvement in the business.
Choosing the Right Trust
There are various types of trusts, each with its own advantages and drawbacks. A revocable living trust allows you to retain control of the assets while you’re alive, but upon your passing, the trust avoids probate, saving time and money. An irrevocable trust, on the other hand, relinquishes control but offers greater tax benefits.
How the Attorneys at Wilson Ratledge Can Help You Plan for Your Family and Company’s Future
If there’s one detail you should know about a family business continuity plan, it’s important not to put it off. The unexpected can suddenly happen to anyone. Delaying having the appropriate legal documents drafted, funding trusts, or otherwise engaging in succession planning can complicate transfers of business, leading to the unintended demise of the business that you wanted to continue to exist and provide for your family once you were gone.
Crafting an appropriate estate and succession plan for your business is complicated, and you should seek competent business and trusts and estate planning legal counsel. Contact our law firm, Wilson Ratledge, now to discuss your goals for keeping your business in operation after you leave it, for any reason.