Business Succession Versus Estate Plan: What’s the Difference?

Posted by Winifred "Wini" Cannon | Sep 16, 2020 | 0 Comments

It is important to distinguish between a business succession plan and an estate plan because you must have both of these plans in place to ensure the continuity of your business and to ensure that everything that you have worked for basically remains intact.

An example scenario

Let's say you have three people who are in business together, and one person dies. Unless there is a clear estate plan and a clear business plan, the two surviving business owners may end up being in business with the spouse of the decedent. If he or she has a will, you could end up being in business with family members of the decedent.

Key steps

In order to allow a clean and even break, the first important component of business planning is to have the business evaluated. Then, you should ensure that it is clear that there's an equitable distribution of the value of the business.

A clear succession plan

With a clear succession plan, which can be financed by what we call “Cross-Purchase Agreements," each person should be taking out insurance policies on the others. So when one person dies, that money, the value of their share, is paid to the estate of the deceased partner, and the business continues on. There's no litigation, and there's no disruption.

You have a plan to buy out the survivor's share of the business. You maintain the business and run on. The business succession plan is a plan where a component of that plan ensures that there's a way to buy out the deceased partner's interests so that the business can continue on.

About the Author

Winifred "Wini" Cannon

Winifred “Wini” Cannon knows how business owners may be impacted when retirement, incapacity, or death occurs without a good plan in place. One example that is very common is in the instance where one partner dies leaving the other trying to stay in business complicated by the...


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