Buffalo Succession Planning Lawyer
What happens to a family-owned business when the principal owner passes away? It’s a question worth considering. Even if a family thinks there’s a general consensus about who will take over, a legally binding plan can be the difference between a smooth transition to new ownership and the end of the business. Everything from punitive estate taxes to family disputes can fatally hamstring the enterprise. DePrima Law has over 18 years of experience helping family businesses put a good succession plan in place.
What Happens Without a Business Succession Plan in New York?
The best way to understand the benefits of a good legal plan is often simply knowing what the consequences are for not having a plan. In the state of New York, the business is either passed on to the estate’s heirs, taken over by shareholders, or some combination of the two.
A state-devised formula is at best an imperfect solution and a potentially disastrous one. State laws simply can’t account for all of the nuances that apply to each specific situation. That’s why it’s important for a lawyer to craft a business estate plan that considers what the owner wants and what the enterprise needs for a transition into a new era.
Issues To Consider in Succession Planning
A Buffalo succession planning attorney can work with their client to address these types of questions…
Will the business stay in the family?
Building generational wealth is often a goal for entrepreneurs and that can include passing down the business to a child. When there is more than one child, the succession plan will have to clearly outline who is in charge and whether the children who aren’t taking over the business will have a financial stake in the company.
Who will run the business?
Perhaps an owner wants their children to financially benefit from the company, but believes its success is more likely with a trusted lieutenant at the helm. Ownership and management are two different things. Children could be given ownership, with someone else chosen to manage the firm.
What constitutes fairness?
Let’s say one of the owner’s adult children worked at the business when they were in high school and college. Then, after graduation, came in full-time and worked hard to gain the respect of everyone at the firm. When this adult child was rapidly promoted, there was no quiet grousing from the employees over nepotism–there was the feeling that the boss’s son or daughter was awfully good at what they did and had earned it. By contrast, the second adult child worked at the company but basically did the minimum expected and nothing more.
An owner wants to be fair to their adult children, but fairness does not always equal an even split. When it comes to deciding what is fair within a family, the discussion can cause serious tension. It’s not a comfortable topic to talk about, but if a business owner has a clear idea of what’s fair, the time to discuss it with their adult children–and put it into a legally enforceable document–is right now. Leaving this unsettled can result in a lengthy court dispute, a poor transition for the business, and damaged relationships among the heirs.
What are the tax consequences?
Each business’ tax situation is different, but the estate tax bite can be substantial. A properly structured succession plan can at least work to mitigate that. Furthermore, different succession plan strategies can offer tax benefits for the owner in the here and now.
A good first step is for the owner to simply review all of their current staff. Who should do what in the absence of the boss? Put together an outline of operational procedures to better understand how the business will function without the owner. From there, the owner can assess the pros and cons of different succession plans. It’s also worth talking to a Buffalo succession planning lawyer about the possibility of insurance–a life insurance policy can help fund an enterprise in the interim period after an owner’s death, while the transition takes place.
For over 18 years, DePrima Law has worked with business owners to protect their assets and work towards a succession plan that’s fair and gives the enterprise a real chance at continued success.
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