California business owners need to think about creating a succession plan for their company. This is an important element of estate planning and helps ensure that your business continues running smoothly if that is your wish.
Preparing for your departure
Succession planning is not necessarily about what happens after a business owner’s death although it can be, and there should be contingency planning in place in case anything does happen to the owner. However, since most people do plan to retire at some point, it is also about what will happen when you are ready to leave the company. Even if you aren’t interested in passing the business on to family members or having them continue to benefit from it, you need some kind of exit strategy in place.
There are a number of different options you can pursue, such as an employee buyout or selling your share to a partner. Being reasonably transparent about the existence of a plan at minimum helps reassure employees about job continuity. It can also be important to reinforce this for clients.
One of the most important aspects of succession planning is identifying key employees and preparing them to step into their new roles. These may or may not be family members. You can actually purchase key person insurance to help protect your business if anything happens to these individuals.
Wills and trusts
Succession planning is also important because it can ease some of the burden for your heirs. While you may choose to pass the business on using a will, a trust can be particularly helpful in some cases at reducing estate tax or providing more immediate access to funds. An irrevocable life insurance trust or a grantor retained annuity trust may be appropriate in these circumstances.