If you own a business, your company may be your most valuable asset. It provides income, creates opportunities, and supports your family.
But what happens if you are no longer able to run it? Without business succession planning, your enterprise could face disruption, disputes, or even closure. Succession planning gives you the tools to protect your company and provide stability for your loved ones.
Why Business Owners Need a Plan
A business does not automatically pass smoothly to the next generation. If you die without a plan, state law decides who inherits your ownership interest.
That could mean heirs who are not prepared—or even interested—end up in charge. Conflict between family members can undermine operations, reduce value, and damage relationships.
Oklahoma’s Probate process also complicates matters as business assets tied up in court may disrupt payroll, contracts, or customer confidence. Planning in advance avoids these risks and creates a roadmap for continuity.
Options for Succession
There is no single approach to succession. Your plan should reflect your goals, the type of business, and the people involved. Common options include:
- Family succession: Passing the business to children or other relatives. This works well if heirs are interested and capable. Training and gradual transition often make the process smoother.
- Employee succession: Selling or transferring the business to key employees ensures leadership continues within the company.
- Outside sale: Sometimes, the best option is selling to a third party. This provides liquidity for your heirs while preserving the company as a going concern.
By weighing your goals, you can choose the approach that protects both your family and the business.
Using Trusts for Business Interests
Trusts are valuable tools for holding business interests. A revocable living trust allows you to manage the business during your life and transfer it privately upon death. This avoids probate delays and keeps operations running smoothly.
For very valuable businesses, irrevocable trusts may provide tax advantages and asset protection. A trust also allows you to separate management and ownership, giving professional managers control while directing income to heirs.
Buy-Sell Agreements
A buy-sell agreement is a cornerstone of many succession plans. This contract sets the terms for buying out an owner’s interest when they die, retire, or become incapacitated. Remaining owners, or the company itself, agree to purchase the interest.
Funding is often provided by life insurance, ensuring cash is available without straining business resources. A buy-sell agreement prevents disputes over valuation, provides liquidity for heirs, and keeps ownership in the hands of those committed to the company’s future.
Planning for Incapacity
Succession planning is not only about death. If you become incapacitated, who will run the business? Without planning, a court may need to appoint someone, creating delays and uncertainty.
By naming a successor trustee or granting a durable power of attorney, you give authority to someone you trust. This keeps the business stable during difficult times.
Tax Considerations
While many estates fall below the federal estate tax exemption threshold, business owners may have more exposure than they expect because of the value of their companies.
Estate taxes are due within nine months of death, and without liquidity, heirs may be forced to sell business assets. Life insurance, gifting strategies, and valuation discounts can reduce the impact.
Reviewing and Updating
Businesses evolve, and so should your succession plan. A strategy that works when your children are in school may not work years later when they are adults. Regular reviews confirm that your plan reflects current circumstances, laws, and goals.
Updating also allows you to test assumptions. Is your chosen successor still willing and able? Do valuation methods reflect current market conditions? Keeping your plan current ensures that it will succeed when needed.
Attend an Educational Seminar!
We conduct seminars that cover all the most important aspects of this important process. There is no charge to join us, and you can learn more here: Oklahoma City estate planning events.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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