Planning for the Retirement or Unexpected Death of an Owner: Advice from a Montana Business and Estate Planning Attorney

Business succession planning is the process whereby the business, and its owners, to agree in advance to issues such as what consent is required to transfer business interests, to whom may an owner transfer business interest to, or how to determine the value of those interests. Two major considerations in this process are what happens in the event of a death or incapacity of an owner, and what happens upon retirement.

Planning for the Unexpected Death or Incapacity of an Owner or Manager

While most individuals do not want to think about death, planning for an unexpected death or incapacity of an owner or manager will enable the business to carry on even if a key individual in the business may no longer be able to manage the business.

When discussing how to plan for an unexpected death or incapacity of an owner or manager, consider the following:

• Buy-out: Do you want the business to buy-out the heirs or family members?
• Financing: What resources are available upon death? How to finance the buy-out of family members? Some options may include: installment payments, life insurance or the creation of a separate fund.
• Price: How do you establish a price to buy out? Price can often be calculated as book value, multiple of annual earnings, by appraisal, or otherwise by agreement of all owners.
• Control & Management: If the business decides to buy out heirs, does it want those heirs to have an active role in managing the day-to-day operations of the business or simply receive income from the business?

Planning for Transfers of Ownership Pursuant to Retirement

While retirement may seem to be a long ways off for many small business owners, planning for retirement of an owner or manager will ensure that the business has both the funding available and capable individuals in place to handle retirement. Some of the same considerations discussed above also apply to retirement, and in addition the business should consider the following:

• Who Will Take Over Leadership: Decide who will be the successors will be. Identify key individuals who may already have a role within the business. Discuss whether family members may have a role in the business and the potential role of current owners, managers and third parties.
• Timelines & Transitions: Discuss the ideal timeline for retirement and what gaps in management may exist upon retirement. Discuss what training may be necessary and how to accommodate the different skills and interest of those taking over.

Communication is the Key to Successful Business Planning

The most critical component of successful business succession planning is communication. Communication between business owners, managers and all family members involved will facilitate a smooth transition. The business succession planning process does not have to be complicated, a simple discussion of these issues and a basic plan is better than waiting for the unexpected to happen and then trying to come to an agreement about what to do next.
If you have questions about business succession planning, contact Kelly O’Brien, Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com