The Difference between Succession Planning and Estate Planning
By: Barry E. Haimo, Esq.
September 23, 2021
While everyone should protect their wealth, business owners must take extra precautions to safeguard both their personal and business assets. Two ways to ensure this are succession and estate planning, which are similar but separate planning approaches.
To know if you need succession planning with your estate planning, you must first understand the difference between each type of planning.
By asking key questions and examining the benefits of both, you can determine the options best suited to your needs and how both plans overlap.
Understanding Estate Planning
Estate planning is an important way to ensure all your assets are protected, handled, and divided according to your wishes in the event of death or incapacitation. It can involve documents and legal entities, including wills, trusts, and advanced care directives. An experienced legal advisor can help you plan your estate, while reducing taxes and liability and avoiding probate.
However, estate planning doesn’t guarantee the continuation of your business. It focuses on the distribution of your assets.
Questions to Ask as You Plan Your Estate:
- What do all my assets include? Who do I plan to pass them along to?
- Can I limit my tax liability for my heirs?
- How can I help my loved ones avoid probate for my estate?
- Have I considered my investments, insurance, and retirement funds?
- Do I have advanced care directives in place? Or a plan for my funeral costs?
Other key elements in estate planning can be considered based on your needs and assets.
What Is Succession Planning?
While estate planning protects your personal assets, including some aspects of your business, succession planning focuses exclusively on safeguarding the continued operation of your business.
Specifically, a good succession planning outlines how the business will operate in the event of your death or disability. It identifies who will fill in key roles and how responsibilities, assets, and ownership will be divided up for a smooth transition.
Even if you do not own a business but instead have shares in a large corporation, it is beneficial to understand how the company’s succession plan might affect you and what you can do to further plan for that eventuality.
Questions to Ask as You Prepare forSuccession Planning:
- Should my business be sold to liquidate assets? Or passed down to family or heirs?
- Will the business continue to be lucrative over time? How can it maintain revenue?
- Who needs to step into key roles to continue business operations?
- What skills are needed to keep the business running effectively?
- How will ownership and company sales be managed?
A thorough succession plan addresses all these questions and more.
When Succession and Estate Planning Converge
As you can see, estate planning is more of an umbrella approach, with multiple legal considerations. In contrast, succession planning is solely about how your business will continue operating after you pass.
So, in what circumstances would you use both? If you have a family business you would definitely want to have a reliable advisor or attorney help you build a comprehensive estate and succession plan.
You might want to divide ownership of the business among your heirs separately from your division of personal financial assets. You may have stock that needs to be doled out to your family in a specific way. Or you may select one or a few family members to take over key roles in the business operations.
In any scenario, you’ll want to avoid any family conflicts and misunderstandings along the way that could stall distribution of your wealth or hinder the operations of your business. Comprehensive and well-executed planning is the key to a smooth transition of your business and personal assets. The attorneys at Haimo Law can help you further understand the difference between estate and succession planning and ensure your wealth management and security for the future. Contact 954-228-3369 today to achieve your business and estate planning goals.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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