Two types of planning that business owners often overlook are estate planning and succession planning. While the two are often lumped together—and in some cases overlap—they are separate processes with their own goals.
Here, we’ll look at how estate and succession planning differ.
Estate planning is the process of making sure your personal assets are handled according to your wishes after you pass on or become incapacitated. It involves reducing your estate’s exposure to taxes and other forms of liability while also avoiding probate as much as possible.
Points considered in estate planning
The main points of estate planning include the following:
- Personal sources of wealth and income
- Personal assets/property
- Family relationships, heirs, and distribution of property
- Investments and insurance
- Potential estate tax exposure
- Financial and medical power of attorney
- Funeral arrangements and last wishes
Consequences of good estate planning
Estate planning is performed in order to achieve the following goals:
- Avoiding, or at least limiting, the probate process
- Avoiding estate taxes where they might apply
- Ensuring personal assets are passed on to the right people
- Avoiding litigation and delays in asset distribution
Unlike estate planning, which focuses on personal assets, succession planning has to do with business continuity. As people age or move on to other opportunities, they’ll leave your business, and the voids they leave behind need to be filled if the business is to keep going. Succession planning aims to make sure those voids are filled when the time comes.
Points considered in succession planning
In succession planning, the following matters are of particular interest:
- Key leadership positions and other roles that should be kept filled
- Skills needed to keep the company running
- Potential sources of talent, both within the company and without
- Training and leadership preparation
- Future business needs stemming from technological or marketplace developments
Consequences of good succession planning
Solid succession planning should yield the following results:
- Seamless business continuity when key personnel and leaders leave the company
- Clear direction for the business when someone leaves
- Employee retention and improved morale as confidence in the company remains solid
- Preservation of important business relationships
- Preserved business value
Where Estate and Succession Planning Overlap
In some cases, estate and succession planning may overlap, particularly when family businesses are involved.
Family business succession
For example, the way a family business is passed on depends on the needs and desires of your family and the business. Dividing up ownership among heirs, the types of stock distributed (if you plan to sell stock in the business at all), the time frame for doing so, and so forth all have implications for both your business and your personal estate.
Business succession vs. your estate plan
If you don’t operate a family-owned business, there are still some matters worth considering. If you own shares in a large corporation, for example, your business’s succession plan regarding how stock is handled after a shareholder’s passing may come into play.
Navigating the process
In all of these cases, you’ll want the guidance of an estate planning attorney to help you through the process.