This article defines the need for
using a team of specialists to help a family through a succession planning
process. To understand why a team is necessary and why you can’t just go to an
attorney for a will or an insurance agent for more life insurance, let’s take a
short walk back in history.
From today’s perspective,
succession planning in the early 1900’s must have been significantly less
complicated. Family owned businesses were truly family enterprises with most of
the family working in it from an early age. When it was time for Dad to retire,
it was common practice for the eldest son to take over. Tax planning was
non-existent. Investment opportunities were more limited.
The Federal income tax was introduced
for the first time during the civil war as a temporary emergency measure
designed to raise revenue during the war.
It was repealed in 1872. However, with the ratification of the 16th
amendment by the states in 1913, the income tax became part of our national
heritage and we are now blessed with an ever-increasing number of rules and
regulations.
The first federal estate tax was
enacted in 1797 as a way for our fledgling nation to build a navy to police our
shores. The tax was subsequently repealed in 1802. It was brought back during
times of national emergency such as the Civil War and the Spanish-American
War--and subsequently repealed when the crisis was over. The estate tax became
a permanent feature of the tax code in 1916. Like the income tax, estate tax
laws have grown in complexity over the years.
When today’s family business
owners are contemplating retirement and succession planning, not only are they
faced with income and estate tax issues, but a raft of other issues, many of
them complex and emotional in nature. Examples of some of these issues are:
·
Possible
conflict or lack of communication within the family unit
·
Multiple
children desiring leadership in the company
·
Fear
that successor is not qualified
·
Fairness
to all children and employees
·
Competitive
pressure on business
·
Dizzying
array of investments with varying risk
·
Adequate
income during retirement
·
Security
of retirement income
·
Fear
that business will fail when owner retires
·
Value
of the business
Is it any wonder that business
owners avoid succession planning? The issues can be intimidating, complex and
emotional.
Many times the owner will jump at
a solution proposed by a trusted business advisor. It is not that the solution
may be wrong; it is that it may be incomplete to solve all of the succession
planning issues.
As a strategic planning consultant
working with families on succession planning, my areas of expertise and focus
are on the strategic direction of the business and the people needed to manage
it. Although I have knowledge in a number of other disciplines, I only provide
counsel in my area of expertise. Other specialists are needed.
Succession planning is not just
limited to creating a will or buying some life insurance. It is a multifaceted
issue that needs specialists in a number of different areas. In my work with
families, some of the other specialists I have worked with and the areas they
address include:
·
Psychologist—Help
integrate personalities and family dynamics
·
CPA—Income
and estate tax issues; financial planning
·
Attorney—Estate
taxes, wills, trusts, legal entities, agreements
·
Valuation
Specialist—Valuation of business and other special assets
·
Business
Broker—
·
Private
Banker—Manage assets
·
Financial
Planner—Insurance, investments
Although many of the disciplines
may have some overlap around the edges, none of them are really experts in the
other fields.
Over the last several years I have
discovered the value of working with a team of professionals who are all
focused on succession planning issues. The team developed a common process and
learned to communicate and agree on solutions to the overall succession
planning issues.
Working with the team is highly
stimulating as we are all focused on defining the right plan to fit a
particular family. Each discipline brings a different, but similar, perspective
to the family and business issues, and the roadblocks that must be overcome.
Although there are substantial
benefits to using a team of specialists that are used to working together on
family business succession planning, it is not unusual to include your existing
expert, such as an attorney or CPA, as part of the team.
As an owner facing succession
planning, your approach should be to form a team, which will stay focused on
solving your problem. As the owner, you
are also an integral part of the team and must be committed to its success.