5 things you need to consider in a business succession plan

On Behalf of | Oct 29, 2024 | Probate And Estate Administration |

“Failing to plan is planning to fail,” thus goes the common saying. This is true in almost any endeavor but is especially true in business. That is why investors prepare feasibility studies and business leaders create business plans. Moreover, as with nearly all plans, none ends, even in death. Life goes on, and business goes on as usual.

As a business owner, you know this exceptionally well. Thus, you know how important it is to prepare for someone to succeed you once you retire or pass away. Here are some fundamental legal issues you need to consider as part of the process:

Inheritance laws

Pennsylvania’s intestate succession law goes into effect if the business owner dies without a will. The estate goes into probate, and the heirs often fight over the deceased’s properties in court. Do not let this kind of issue tear your business apart. Ensure your company has a succession plan while you are at the top of your health.

Buy-Sell agreements

Buy-sell agreements are integral to a succession plan. Every business should have such an agreement since it outlines what happens to the company when the owner dies, becomes disabled or wishes to sell their interest. Pennsylvania recognizes these agreements as legally binding, facilitating a smooth transition when the business changes ownership or undergoes a transfer.

Estate taxes

Pennsylvania does not have an estate tax nor a state gift tax. However, an inheritance tax ranges from 4.5% to 15%, depending on who receives it. The main difference between an estate tax and an inheritance tax is that the estate tax applies before the heirs receive their inheritance. In contrast, the inheritance tax applies after they receive it.

Business valuation

State law requires a fair market assessment of the business for tax purposes. This valuation will be critical in buy-sell agreements and transferring ownership from one party to another.

Employment laws

Succession plans also need to consider the state’s employment laws, especially if they involve significant changes in management or ownership. Depending on the circumstances, the company may need to provide notice or severance to employees.

Moving forward

Consulting with a local estate planning attorney can provide more detailed guidance tailored to your situation. They can help navigate these laws and ensure your succession plan is comprehensive and legally sound.

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