How Can an Estate Attorney Assist with Business Succession Planning?

In business succession planning, an estate attorney in Houston can provide all the legal help that’s needed to ensure you have a smooth and lawful transfer of business ownership under Texas law. But it would be a mistake to think that this role is just about preparing some legal documents. An estate attorney is a strategic advisor who can provide peace of mind in a number of ways.

Your attorney’s involvement typically begins with a thorough assessment of the business’s current structure, ownership, and your personal estate plan and goals. From there, they will work closely with you to develop a succession strategy that fits the reality of the business as it is, your personal goals, and takes into account all aspects of the law that have bearing on the issue. An estate attorney also knows how to work with other professionals, like financial advisors and business valuators, to ensure that no aspect of the succession is missed. Specifically, your attorney can:

This is obviously one of the primary reasons for getting an attorney in any situation, and an estate attorney will know precisely which documents need to be drawn up and how to do so legally. They will also know where these documents need to be filed, what kind of supporting documents go with them, and how to draft them in a way that will minimize any possibility of dispute later on. The key documents in such a transfer may include:

A will can specify who inherits a business; a trust can provide more control over how and when the business is actually transferred.

These documents may be crucial if you have a business with multiple owners. They clearly delineate all conditions under which any partner’s share can be bought out in the event of death or retirement and establish a fair evaluation method.

A durable power of attorney is a useful document that gives guidance on what to do if an owner becomes incapacitated, so business operations can continue without interruption.

Any time a business is sold, transferred, inherited, or broken up, the tax consequences can be enormous. There can be estate taxes, gift taxes, capital gains taxes, and more. One key role of an estate lawyer is to structure the plan of succession in a way that keeps these liabilities to an absolute minimum.

For high-value businesses, estate taxes in particular can be substantial, so an attorney may recommend and help you set up a gifting of shares over time, so that you can take advantage of annual gift tax exclusions in order to lower the total value of the business and minimize taxes upon your death. Another possibility is setting up a grantor retained annuity trust (GRAT) to transfer business interests while reducing taxable estate value.

If a business is sold, capital gains taxes can seriously eat into profits. An attorney can help you to explore all available options, such as installment sales or charitable remainder trusts, which can help to spread out the tax burden or even reduce it.

When you’re dealing with a family-owned business, things can become emotional and even combative. It can be difficult to pull back and take an objective view of the whole thing under the circumstances, but an attorney can offer sound advice and strategy from a perspective that’s disconnected from these emotional and relational concerns.

This is not a small benefit: disagreements among family members about who should take over the business or how it should be managed can derail even the best-laid plans. But an objective estate attorney can help an owner to create a plan that balances the interest of all the family members with what’s good for the business, while even considering the interests of family members who are not active in the business at the moment. Attorneys know how to encourage open dialogue and set clear expectations, which can prevent and minimize misunderstandings.

Having the right successor is a critical decision that any business owner faces when thinking about how a business will continue to thrive and he or she is gone. Another role that an estate attorney can play in this process is clearly formalizing the roles and responsibilities of potential successors, and then giving advice on how to find and train up the right people for the right jobs.

Employment contracts can outline the terms under which a successor will take over, as well as set terms for compensation, a transition timeline, and performance expectations. Shareholder agreements for corporations can specify dividend policies, voting rights, and other governance issues that may affect the successor’s control. And, of course, an attorney will set in place all the legal documents and processes required for transferring ownership. This could include drafting stock purchase agreements, getting necessary approvals from a board, and much more.

The legal structure of a business is affects the way any succession goes. One of the things an estate attorney will do is craft a succession plan that fits the structure of the business as it exists and fulfills all legal requirements for transferring. This can become very detailed. In a corporation, the attorney may be required to update bylaws or amend articles of incorporation, for example. In a partnership, a new partnership agreement or a buyout clause may be essential.

A business succession is often just part of a larger estate plan, and thus it only makes sense to consider the business transition in coordination with all other aspects of estate planning. An estate planning attorney will make sure that the business succession plan properly integrates with the broader plan. In doing so, the attorney will be concerned to:

If, for example, the business is left to one child, while other assets are distributed to siblings, the attorney can help structure the overall plan in such a way that the inheritances are equitable.

Life insurance policies, for example, can provide liquidity so that heirs can take over the business without being forced to sale by ruinous estate tax bills.

“The best laid plans,” so they say, and it’s quite true that any plan comes with risks and unforeseen contingencies. An attorney with extensive experience in these matters will have a much better idea of what those risks might be and what contingencies to plan for than the average person.

If the owner of a business should become disabled or incapacitated or die unexpectedly, a plan can be put in place that can take all this into consideration. If there are legal disputes, a well-drafted business succession plan should include dispute resolution clauses, such as mandatory arbitration.

A business plan is obviously not a one-time event. It’s an evolving process that will have to adapt as there are changes to tax laws, inheritance laws, the business itself, the economy, or family circumstances. One of the services a business succession lawyer can provide is to review and update the succession plan as needed to ensure it remains relevant.

For help with your business succession plans, contact Hensley & Krueger, PLLC in Houston, TX today.