Our office focuses on nine basic tips for designing a business succession plan.

Tip #1. Ensure that all business records are accurate and up to date before you discuss business succession planning. If the information with the state needs to be updated, the state website typically provides forms that you submit to update the information. Our office welcomes the opportunity to update your records and guide you through website to ensure accurate information, if necessary. If your business was never registered with the state, we still recommend that a legal professional review your organizational documents to ensure that business is ready for the transition. 

Tip #2. Review each owner’s financial power of attorney to ensure the correct individual can handle the business should an owner become incapacitated. There are two ways to handle business powers granted under a financial power of attorney. First, you can include business powers in the general power of attorney and just designate that those business powers are granted to a particular individual(s). 

The second way to address business powers in a financial power of attorney is to create two separate financial powers of attorney. One financial power of attorney is a limited financial power of attorney and specifically used to grant business powers to an agent of your choice. You would still maintain a general financial power of attorney for personal assets. 

​Tip #3. Ensure long-term care provisions are included in the governing document of the business. There is some debate in Pennsylvania and other states about whether an ownership interest is an available resource if the business governing document specifically states that the ownership interest is not available for long-term care. We think it is helpful to state whether the interest in available for long-term care in the governing document before any owner actually needs long-term care. This is helpful for two reasons: (1) it ensures that all owners are on the same page about the availability of a business interest, and (2) it is a factor that falls in favor of the argument that the business interest should not be an available resource for long-term care. Additionally, we advise a client to further protect his or her interest, and that starts with a discussion with your accountant.

Tip #4. Consider using a trust as part of a business succession plan if the client is concerned about his or her long-term care costs or his or her co-owner’s long-term care costs. This is an important discussion to have before you start talking specifics regarding business succession planning because if a client decides to transfer his or her ownership interest to a trust to protect against long-term care costs, during that owner’s life, any business succession plan will be included in the provisions of the trust.  

Tip #5. Ensure that the governing document allows the business interest to be transferred to a trust. Our team confronts two issues related to this tip: (1) some clients do not have governing documents so we help to draft those documents, and (2) a large number of governing documents do not address whether a client can transfer his or her ownership interest to a trust. If the document does not specifically provide that a client can transfer his or her ownership interest to a trust, we recommend executing an amendment to the governing document to allow the owner to transfer his or her ownership interest to a trust to protect against long-term care. 

Tip #6. Consider the income needs of the transitioning owner. 

Tip #7. Work with the client’s financial advisor to create a retirement budget so you have realistic numbers. It was important to have the business tax returns for the last year to know what type of revenues the business generates. Once an owner has identified what retirement income is needed to sustain his or her standard of living, we help to analyze, with the help of the business accountant, whether the business can withstand payouts. Tax returns can show you how the business has grown over the last three years. Is there is steady amount of growth? What caused that growth? Will that percentage of growth be sustainable? If the business does not grow at all and stays the same, will each owner receive enough annually for the next generation to be able to make those yearly payments? 

Tip #8. Consider federal income tax ramifications not just death tax ramifications of the business succession plan. We encourage clients to use actual numbers. The more willing you are to put numbers to the situations, the easier it is for clients to understand. 

Tip #9. During the initial consultation create a plan of action, complete with a list of what information the client needs to obtain and schedule the next appointment so that there is always forward progress. 

The Law Office of Samantha K. Wolfe welcomes the opportunity to assist you with your business succession planning. 

Call (717) 655-2676

Contact us today to schedule a free initial consultation to discuss your succession plan.