Planning for Successful Business Transition? It’s Not the Same as Estate Planning

Owners who are personally and emotionally involved in their businesses, including farming operations, often consider what will happen to their businesses, farms, and business assets when they are no longer involved. Planning for the disposition of a business is different than estate planning. While many think they are the same process, they are really very different.

Estate planning concerns the transfer of assets, including wealth, of an individual from one individual to another or to an entity, such as a trust, and this occurs only when the person passes away. Ownership of a business and business assets, whether they are tangible or intangible, can be transferred to a legal entity whenever the owner chooses. The Columbus (NE) Telegram’s article, “Estate planning and business transition quite different,” discusses these two different kinds of transactions.

Business transition is simply the transfer of a business asset or the entire entity from an existing owner who has decided to retire or move on. This usually occurs during the life of the existing owner. However, when a business transfer takes place after the death of the owner, it’s usually part of an existing or implied estate plan or asset transfer process.

The process of business transfer can be a very simple process, or it can be complex and dynamic with many steps, based upon the wishes of the existing owner. There is a valuation of the business and the resources that must take place. The transfer of the tangible and intangible assets can occur through the cash purchase of individual items, a purchase of share interest, and/or purchase of stock or certificates. A cash sale, just like when buying a house, is the quickest and cleanest. A larger company with stockholders and a corporate structure takes some time.

The article reminds us that there are a number of similarities between estate plans and transition plans, but the big difference is the timing of the transfer. Estate plans deal with the transfer of tangible and intangible assets and interests after the owner has died. A business transfer plan typically happens when the owner is still alive.

Neither of these is designed to be a replacement for the other. They work together to fulfill the wishes of the business owner.

A qualified estate planning attorney can help a business owner sort out the issues and create both plans according to the owner’s wishes.

Reference: Columbus (NE) Telegram (July 20, 2015) “Estate planning and business transition quite different”