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Well-defined plans necessary for business succession

You have toiled for years to build your business. You plan to retire in a lovely Florida area, then hand the business over to the children who have worked alongside you to make it what it is. If this plan is not put down on paper and made legal as part of your estate, all plans could go awry if you die before you retire.

Consider this scenario, for instance. At the time of your death, you are married to your second wife, who doesn't happen to be the mother of your children. Upon your death, your estate goes to your widow. She takes over the company but fires your children. She installs her biological children into their positions. Your children are out of luck.

Steps should have been taken to avoid this problem. That could have been done by enacting a buy/sell agreement. Under such a plan, the business would have gone to the surviving spouse, who then would have been required to sell to the children.

As part of the plan, the children would have bought a life insurance policy on their father. At his death, the children would have used the insurance proceeds to purchase the business. An insurance adviser can tell them the best type of policy to buy.

The stepmother would have ended up with the proceeds, the children with the business.

Or, the business could have been put into a trust, with the children as trustees, and the trust could have bought the insurance and subsequently funded the children's purchase. The trust would own the company, with the children receiving a salary.

The benefit to that scenario, as well, is that should the children be involved in any lawsuit, the business will not be involved.

A business could be a person's largest asset and provide a financial future for coming generations. An owner should make every effort to protect it.

Source: Plastics News, "Family biz needs succession plan," Kevin La Mont, Dec. 7, 2012

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