We’re in a “Perfect Storm” for Business Succession Planning

As part of the segment I’m doing on Business Succession Planning, I want to share planning tips I recently presented at Bank of America’s Business Owner Conference. It was easy for me to relate to the audience of business owners, as I grew up in a family business. I understand the attachment they feel to their business, and the reluctance to plan for the day they are no longer here to run it. For people who wake up every day with entrepreneurial energy, it’s hard to imagine the day when someone else is in the captain’s chair. But if business succession planning is done carefully, it will address not only the financial aspects of the transition, but also the psychological aspects. Indeed, it’s the psychological aspects that usually produce the greater challenge.

Why is now the “Perfect Storm” for such planning? Ever since the COVID pandemic, I’ve noticed a heightened awareness of our mortality. Many who behaved as if they’ll live forever began to realize that one day they’ll be gone. As I often say, it’s a WHEN, not an IF, you’re no longer here to run the business. And for those who feel “indispensable,” I often respond with the Charles DeGaulle quote: “Cemeteries are full of indispensable people.”

Therefore, now is the time that more and more business owners are seeking advice on planning tools to pass on their business in the most tax-efficient and family-efficient way. To summarize these tools, I prepared a PowerPoint with seven ideas for business owners to consider. Click on this LINK to review my Bank of America presentation.

Business Succession Planning is not a “one size fits all” endeavor. Each family needs to create the structure that’s the right fit. In my speech, I hit the highlights of “squeeze & freeze” planning techniques, such as Defective Grantor Trusts, 678 Trusts, and SLATs. In addition to locking in the doubled estate tax exemption before it sunsets in half (on December 31, 2025—only three years from now), these trusts also protect all future appreciation from the 40% estate tax. Unless you plan around the estate tax hit, the federal government is your 40% silent partner in your business. Passing business ownership into trusts not only saves tax, but it also protects the business from an owner’s creditors and divorce. Moreover, by using trusts to own the business, you can also carefully select the trustee who will oversee the management of the business when you are gone.

In addition to addressing business ownership, management, and taxes, the plan needs to also address family dynamics. A skilled consultant can help the family navigate the process, doing it in a way that strengthens communication among family members and builds trust. As family consultant Tom Rogerson wisely says: “A strong business won’t sustain a family, but a strong family will sustain a business.” You can’t effectively plan for a family business’ continuity without also planning for family continuity. In addition, the family business is typically inextricably woven into the family’s identity. Letting go of a family business leaves a void in a family’s identity. It also leaves a void in the founder’s self-image and can have a profound effect on self-esteem. Therefore, the plan also needs to help the family “fill the gap” when business ownership and/or management changes hands.

A final note: now is the perfect time to start. Those who are waiting until “the time is right” are often caught by life’s surprises. As Tom Rogerson says, “It’s rarely too early to plan, but frequently too late.” Similarly, life insurance producer Todd Healy confirms: “Five years too early is better than five minutes too late.” Healy analogizes to having an antidote already on hand in case you get a snakebite: “If you don’t have a snakebite kit on hand, by the time you get bitten by a snake, it’s already too late.” A word to the wise: don’t wait until the snake bites to have a kit in place.

I will continue to build on all these themes as we delve deeper into the world of business succession planning. Starting next week, we’ll explore real life stories of business-owning families. I look forward to sharing lessons we can learn from those who did it right, as well as those who didn’t.

Marvin E. Blum

Marvin Blum speaking at Bank of America’s Business Owner Conference on the “Perfect Storm” for Business Succession Planning.