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Important Considerations in Business Succession Planning


Planning necessarily requires assumptions, some basic some small. Alternative plans may be required, therefore, depending on which of the basic assumptions occurs. Advisors may develop a wonderful plan to transfer the family business upon the owner's retirement fifteen years for now, but how effective will that plan be if the owner dies prematurely. Alternatives may be limited by the type of business interest (C corporation, S corporation, partnership or limited liability company, real estate).

Typical alternatives for planning and implementing a business succession plan during lifetime include:

  • sale within the family,
  • lifetime gifts to family members,
  • sale to an ESOP,
  • use of charitable trusts and private foundations, and
  • sale outside the family.

In a similar manner, typical alternatives for planning and implementing a business succession plan upon the death of the business owner include:

  • sale within the family,
  • bequest to family members,
  • sale outside the family,
  • sale of an ESOP,
  • use of charitable trusts and private foundations,
  • section 303 redemption to pay estate taxes, and
  • section 6166 extension of time to pay estate taxes.

While not typically the driving force, business succession planning will certainly take current income and transfer tax laws into consideration. These are very economically and politically sensitive statues and frequently change, sometimes fundamentally, as the economic and political climate change. A business succession plan must consider the direction and magnitude of future changes and at least provide mechanics for changing the plan.

We have assisted business owners in planning and implementing successful business succession plans. We are available to help you with this important set in your family financial and estate tax planning engagement.


©2008 Ronnie C. McClure, PhD, CPA