What is the difference between estate and succession planning?

Succession plans are focused on the sustainability of a business, while estate plans are focused on the mechanical transfer of your assets to the intended heirs (including ownership interests in a business). 

In family owned and operated businesses, the line between succession and estate planning can be blurred together. Many times, the ownership interest in the family construction business is the most valuable asset, so determining who, when and how to transfer this asset in the most tax efficient, and sustainable method should be the focus for having success in the overall estate transfer. Not surprisingly, the issue of estate equalization among all family members is important to the business owner in his/her estate planning. So, the overall estate and succession plan needs to be coordinated. If the family-owned business is transferred to employees working for the business, but the other children are left out of the succession plan how will the uninvolved children receive their “share”? Lack of either an estate or succession plan creates confusion, or surprises later.

Additionally, many times the successors of a business don’t have the resources or ability to pay the fair market value of the business. What discounts can we use on the purchase of the business, and how does this transfer coordinate with the gift tax exclusions if the transfer is going to a family member? How will the creditors remain able to continue providing credit to the business? What do we do if it doesn’t go as planned?

Having a well thought out, comprehensive estate and succession plan is a good way to avoid these surprises. Successfully navigating these questions to avoid surprises can be a difficult process, and should involve collaborative input from your CPA, banker, surety, and attorney. 

In our experience, having a team of professionals that is working together cohesively really helps this process.