Top 40 Tips for Succession Planning

Whether you’re a business owner planning for retirement or an individual planning for your family’s future, it’s important to have a good succession plan. Having a well-developed succession plan can help ensure your business’ future as well as help your family avoid considerable tax implications. Here is a list of succession planning tips for both businesses and individuals.

Whether you’re a business owner planning for retirement or an individual planning for your family’s future, it’s important to have a good succession plan. Having a well-developed succession plan can help ensure your business’ future as well as help your family avoid considerable tax implications. Here is a list of succession planning tips for both businesses and individuals.

Business Succession Planning

1. Define your future role in the business. It may be challenging to choose from different succession plans, but the first step will be to decide if you want to keep that suit for an advisory position, or trade it in for that Hawaiian print t-shirt.

2. Make your succession plan a part of your business plan. It’s ideal to have a 3-year or 5-year plan for your business, and that plan should be consistent with your exit or succession strategy.

3. When you are going to sell your business, sell it at the right time and for the right reasons. Make sure that your succession plan is in-line with your business strategy.

4. Keeping a business in the family can be a very satisfying way to change ownership and keep an emotional connection to the business.  However, this can also cause many problems –both within the business and at home.

5. Define and consider the goals of your succession plan. You may feel it is important to get maximum cash up front, maximum overall price for the business, retain local ownership, or reward your employees for their role in building the Company (while enjoying significant tax benefits through an Employee Stock Ownership Trust).

6. Provide internal and external trainings for your employees to prepare them for the transition you have chosen. This will minimize unpleasant surprises and disruption down the road.

7. Focus on fostering the growth and development of your management team into your “dream team.” Consider what areas of growth need to happen in order for you to feel confident in leaving them in charge.

8. Be sure to keep the company’s culture and strategy in mind when considering different acquisition routes. Review 360-degree survey feedback from different people to make sure that your selections will be a good match for both companies.

9. If you decide that a merger or acquisition is right for you, assemble a team of people from your finance, accounting, marketing and sales departments to help provide perspective and insight from all departments. If these positions do not exist, consider using outside advisors or consultants.

10. Determine how much the business is worth and identify your ideal selling point. This could be done through an appraisal by qualified professionals.

11. Understand the true value of your company. Any unrealistic expectations of its value could lead to deals breaking down or barring them from ever beginning.

12. Selecting your successor can be difficult, but it is important to identify the right person as soon as possible to begin training and setting goals.

13. If selecting a successor from within, assign higher level projects to challenge your pool of potential successor candidates. It’s a good opportunity to proactively train these candidates and evaluate their skills.

14. If you have determined that there are no suitable successors within your company, coordinate with your recruiting department and start monitoring candidates in the market.

15. Have open communication with your selected successor. Make sure that they understand the cost and risks as well as any financial requirements that may be involved.

16. Be sure to have a smooth and gradual transition to your new leadership. The transition should not happen overnight and the timeframe should be clearly communicated with all those involved.

17. Review your succession plan periodically and make adjustments as necessary. This is important since tax laws and other regulations may change over the years.

18. Always have a plan B. You should be prepared with a backup plan that can be initiated without too much disruption.

19. In order for your business to be successful without you, you must learn to let go, delegate, and teach others the ins and outs of the business.

20. Embrace change and encourage evolution. Senior workers may have a hard time straying from protocol, while younger employees may be able to see a faster way of completing a task. Strive to find an effective way for generations to learn from each other and enhance the business.

Individual Succession Planning

1. Clarify and understand your objectives. Understand your family dynamic, outline your lifestyle goals, your legacy wishes and any other special considerations.

2. Be sure to allocate an appropriate amount of your assets to use during retirement.

3. Ensure that your personal wealth, business plans and ownership transitions do not conflict with one another.

4. Decide the policy type, structure and amount of your life insurance portfolio.

5. If you have a lot of cash in accounts, there is a set dollar amount that you can gift per year to each child without tax implications. This cap often changes, so be sure to make sure you are staying within the limits of that given year.

6. If the gift is for a child’s medical expenses, dental bills or tuition, this amount can be exempt from the annual gift limitation.

7. You can establish an irrevocable trust instead of transferring the title of your property to your heirs. You can specify how the income in the trust will be distributed as well as decide at what point you want the transfer to be initiated. This can be immediately upon death or at a specified age of your heirs.

8. You can set up a revocable living trust, allowing you to transfer assets to a trust where a selected trustee will ensure that your assets are managed in congruence with your wishes after you pass. Assets in the trust will also avoid probate.

9. Determine the right time to pass your properties to your children. If you give the property to your children before death, they will bear the tax implications for the increase in value of the property if/when they decide to sell. Passing the property to your children after death reestablishes their tax basis at the market value of the property at the time of death. For large estates, the estate tax implications should be considered when evaluating this option.

10. You should keep documentation proving ownership of real estate, vehicles, stock and partnership interests.  Additionally, you should keep corporate, partnership and LLC operating agreements and any other proof of ownership documents. These documents are important for your family to have handy in case authorities require them down the road.

11. Have a list of your bank accounts and passwords in a safe deposit box. Make sure your trusted loved ones know how to access the box in the case of death.

12. Make a copy of your life insurance policies. This should include the name of the carrier, the policy number and the agent associated with the policy. Have these documents somewhere safe where only trusted individuals can access them.

13. Update your life insurance and annuities, and ensure that your beneficiaries are properly listed and updated.

14. Keep a copy of your marriage license and be sure your spouse knows where to find it. The license is often required to prove rightful access to property and assets, and in some cases, prove authority for medical decisions.

15. Review any retirement accounts you have. Contact your plan administrator and review the accounts to make sure that the beneficiaries are listed exactly as you desire.

16. There is no federal inheritance tax for couples with an estate under $22.4 million or for an individual estate under $11.2 million.  For estates less than these amounts, consider waiting until death to pass significantly appreciated properties to your heirs. In the year 2025, these numbers will revert back to $10.98 million for married couples and $5.49 million for individuals.

17. For high net worth individuals, keep in mind the option of creating a personal foundation. Gifts to a Foundation could result in a significant current income tax benefit.

18. An executor should consider an alternative valuation date for a decedent’s property. Typically the basis of property is the fair market value of the property on the date of death. The alternate valuation date is six months after the date of death.  If the alternate date is chosen, it is possible to decrease both the gross amount of the estate and the estate tax liability in some circumstances.

19. If you give stocks to children under the age of 24, be aware of the “Kiddie Tax.” It will be taxable at the parents’ highest rate if the amount of interest or dividends from the gifted shares exceeds a dictated amount.

20. Review your trust every few years to ensure the information accurately reflects your wishes.

If you have questions or want to learn more about how you can start preparing your succession plan, reach out to one of our specialists at 925.271.8700 or at