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Succession Planning in Turbulent Times

SUCCESSION PLANNING Buy life insurance that’s payable to the business, Naples estate planning attorney Ed Wollman advises business clients.

The spring and summer of 2020 had many people worrying about their mortality. For business owners, this meant putting into place succession plans that would govern who should take over their business if necessary. While estate planning for individuals is a common concept, corporate estate planning has its own unique considerations.

Ed Wollman, an estate planning attorney at Wollman, Gehrke & Associates in Naples, offers a multi-step strategy for succession planning to business owners who seek his services. His first piece of advice: Buy life insurance that’s payable to the business. “It’s very difficult to sell a business midstream,” Wollman says. If an owner dies suddenly, the business is going to need an infusion of capital to continue to operate. “Life insurance helps with liquidity while the hole left by the business owner is being filled, because you can’t sell a business overnight.”

When business owners reach out to Wollman about how they should will their business, he reminds them that their heirs are not necessarily the best people to take over a company. Maybe a child doesn’t have the right skillset to run the business. Maybe he or she is better behind the scenes. Or maybe an owner’s children simply aren’t interested in taking over the family corporation. Whatever the case, it might be better to have a successor in mind from among a business’s employees. If an owner dies suddenly, this successor can buy the business from the owner’s heirs.

“Most of my clients sell to an outsider,” Wollman says. “The business is not usually something the heirs want. Nowadays, children have the luxury of going to school and trying something different.”

Robin Merriman at Aloia Roland in Fort Myers often sees a similar scenario. One of his preliminary questions to his clients is, “Do you want to specifically pass along the business, or do you want the business to be sold and to pass along its value?”

Once Merriman understands his client’s intent, he reviews the existing business documents. Particularly important? If his client owns a partial interest in a business with an operating agreement or a buy-sell agreement in place. “One of the challenges to the drafting and implementation of an estate plan that incorporates the disposition of a business upon death is the limitation imposed by existing business documents on the ability to transfer the client’s interest,” he says.

That’s why Merriman works closely with his firm’s corporate attorney. And to ensure that the plan avoids adverse tax consequences, he works hand in hand with the business’s accountant.

“In estate planning for business owners, there are a number of considerations that come into play,” Merriman says. “They all need to be resolved to ensure that the succession plan can be effectuated.”


Photo Credit: Getty; Courtesy Ed Wollman


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