Individuals who own and operate successful businesses may feel more inclined than the average person to create estate plans. They may recognize the value of their resources and the importance of preventing their families from fighting over them.
While estate planning is a smart move for someone who controls a business, their testamentary documents can only go so far. Traditional estate plans usually include arrangements for the transfer of business ownership after someone’s death. They may leave the business to one person, transfer ownership to a trust or provide instructions for their children to run the company together.
In addition to planning for the transfer of ownership to others, a business owner may also want to consider drafting a succession plan. A thorough succession plan can be as important as an estate plan for someone who wants their business to continue operating even after they die.
What should a succession plan include?
Succession plans differ from standard estate plans because they do not address the distribution of property. Instead, their focus is on the transition of leadership within an organization. Many times, a succession plan is where a business owner outlines who they believe should take over their responsibilities at the company when they die or become incapacitated.
Some people create a list of candidates who they feel could effectively perform the job that they might leave vacant. Others focus instead on outlining the capabilities and training that a replacement candidate requires.
Frequently, succession plans go into great detail outlining the job responsibilities someone performs. The succession plan can be a place to share information not typically made public and not included in any official training materials for the position.
A thorough succession plan can allow for the transition of leadership at an organization without any major interruptions. The longer it takes a new professional to take over the role, the greater the possibility of the company experiencing decline in the meantime.
Succession plans are so important that many bigger employers require that workers create succession plans as part of their employment agreements. Establishing a succession plan while creating or revising an estate plan can be a smart move for a business owner. They can help pave the way for a company’s continued success even if they can’t personally operate it.