Making sure that your business survives you is not easy, it requires diligent and careful planning. Specifically, business succession planning and estate planning. This article explains how these legal domains work hand in hand to help you ensure the continuity of your California business interests, including: 

• The key estate planning components required for business succession planning. 

• The advantages of including a living trust and buy-sell agreements in your estate plan. 

• Pitfalls to avoid, risks you can mitigate, and the proper timing for reviewing your plan.

What Are The Key Components Of An Effective Estate Plan For Business Assets In California?

There are a great number of factors and components that go into making a strong estate plan, especially when it comes to business assets:

• The assets themselves,

• Ownership documentation,

• The business entity involved,

• Management structures,

• And more.

A good business succession estate plan manages to fit all these things together. The most critical basic component you need to have, however, is a team of experts, including attorneys, accountants, and appraisers. 

If you are unaware of what you do not know, you risk making the kind of mistake that can have a cascading effect. Most of these mistakes, fortunately, once found, can be solved by attorneys and accountants. 

How Can A Living Trust Help Protect Business Assets?

A living trust avoids the California probate process; for that alone, it is a potent estate planning tool. 

Probate is a process that can not only delay distribution for many years but also do so at a considerable cost. It is costly because it requires counsel to be paid over a significant duration, especially if any conflicts emerge. 

It can also mean that you will not get the business assets when and where you need them, which can leave your company stuck in the middle of something that it cannot finish.

What Are The Benefits Of Incorporating A Buy-Sell Agreement In Your Estate Plan?

Buyout agreements, or buy-sell agreements, help you smoothly transfer ownership to a remaining partner when another dies. They can be one way of getting to a happy-ever-after exit, most notably by prearranging to have someone buy you out. 

There are natural situations where buy-sell agreements are sensible, and then there are some situations where they are exceptionally beneficial for financial reasons; but only so long as you have taken into account all the factors that have to go into a good succession plan.

How Does Estate Planning Help Mitigate Risks For Business Owners?

A good handoff requires that a successor be ready to take over at the right time, but it also requires the mechanisms be put in place to ensure a smooth transition of ownership. Business estate planning is all about making sure that handoff can take place without a fumble. 

Failing to properly account for all possibilities, or improperly setting up one of those mechanisms, could mean big losses, liabilities, taxes, or legal penalties. Planning ahead mitigates these risks, especially if you avoid the most common pitfalls. 

What Are Common Pitfalls To Avoid When Planning For Business Asset Protection?

While there are nearly an infinite number of possible mistakes you could make on your own if you do not work with an attorney, some are easy enough to avoid and costly if you do not. 

For example, it is easy to end up overlooking assets, sometimes even very obvious ones that are so evident we take them for granted. For instance, intangible property often goes unassigned and online accounts and passwords are rarely included. 

Alternatively, sometimes documents are just improperly structured or you might need to readdress how you treat real estate.

Lastly, forgetting to update your plan to include major life, finance, or business changes can also be catastrophic!

How Can You Update Your Estate Plan To Reflect Changes In Your Business?

Laws do change, and businesses are forced to change with them. Even without legal adjustments, however, businesses inevitably change for other reasons, too. As a business owner, you have to comply with new laws and, beyond such basic maintenance, make use of all your economic opportunities. 

You also have to make your succession plan adapts to the new situation, or thrives in the new conditions. Doing so can often be as simple as calling your attorney and getting your team together to work on it. Alternatively, doing so as a regular or repeating exercise will also ensure you are ready to adjust as changes arrive.

How To Manage Conflicts Of Interest Between Management And Ownership?

Big and destructive conflicts can emerge between the owners of a company and its management, especially during times of stress. Sometimes owners will even hire special management to deal with unique situations like selling a business to avoid these disputes.

Ideally, in the situation that you are planning for in your succession documents, your goal is to maximize the outcome for you as an owner. Ultimately, though, you have to deal with management, which may have different priorities.

As a result, you may want to replace or supplement the existing management so that you have an independent person negotiating your deal and getting you the most. Someone who will not necessarily look out exclusively for management prosperity, which can sometimes be a conflict for existing management.

For more information on Safeguarding Your Business, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling 949-480-1005 today.