Know the Difference and Plan As Needed
In very general terms, estate planning refers to personal assets and succession planning lays out the terms for a business. And while both terms refer to plans intended by the creator once they’ve passed, it’s very important not to equate the two terms.
A person does not need to be a business owner to create an estate plan. As a matter of fact, they don’t even need to be rich; estate plans can be created by anyone. On the other hand, succession plans can only be created by business owners.
Different but Similar
While the two plans address very different challenges, Estate planning and succession planning both share the same challenge of consideration.
Both have to address problems in inheritance. For example, creating an estate can involve having to list every asset you have and then deciding who gets control of those assets. Which relative gets which property? Does one person get all the money? Do any of the assets wind up with a charity? Will these decisions lead to negative impacts on the beneficiaries?
Likewise, the questions raised during succession planning can get very intimidating. What happens when I want to retire? Can the business survive without me? Who will be in charge? Do I hand off the business to a family member or one of the employees? Will that person maintain the business model I’ve created?
Should I just Sell the Business?
Additionally, depending on the size and internal makeup of the business in question, succession planning can seem even more daunting than estate planning. A business succession plan also has to consider both the future of the business and the people who work there, making the prospect of creating a succession plan very daunting for even the most practical business owner.
The bottom line, both plans require time and consideration before going into effect.
Another similarity shared between the two plans can be the chaos and confusion of not having a plan in place when the changeover occurs. If a person passes away before creating either an estate or succession plan, or if a business owner sells the business without having a succession plan in place, both the beneficiaries and employees can be left without guidance and support for the future.
The lack of an estate plan can lead to:
- Tax liabilities for assets/properties
- Potential litigation challenges due to various parties claiming a single asset
- A severe slowdown in asset distribution due to probate/estate requirements
- Fights among the intended beneficiaries
- Unknown individuals claiming to be beneficiaries
Likewise, not having a succession plan in place can result in:
- Lack of leadership to replace the former business owner/operator
- Employee impacts include lack of morale, competition, and overall dissatisfaction
- Internal power struggles
- Overall loss of business due to lower customer experience
For these reasons, it’s important for you to start considerations for your estate and/or succession plans early to better consider the numerous factors important to you and your business.