People frequently begin with the idea that an estate plan and/or a succession plan are events that solve something. You move along your life line, attach a plan to a point and it is done. I sold the business to the kids. I set up a will and some trusts. I retired. Life is good.
That is a view that is so wrong as to nearly guarantee problems. A will is not an estate plan and an agreement is just part of a succession plan. These devices are not Sidewinder air-to-air missiles. “Fire and forget” is a poor approach in the planning realm.
Succession planning and estate planning are major transitions in a life plan. That plan has several zones. They are a little different for each person and care must be taken to get them right. Each zone has priorities and each zone has opportunities and limits. They overlap a bit. The idea is to know where you are and what you should be about.
For people who have reached age 45 or so, (out of debt being an important variable) the zones are:
- Now to retirement. The opportunities are experience, time and availability of capital. The limits are diversity and taxation. The agenda is accumulation of wealth. The succession plan will fit in here usually about five years before retirement. Negotiation and planning of the agreement and its implementation will have begun sooner.
- Retirement to first death. The opportunities are capital and experience again. The agenda is cash to spend and predictability. The limits are taxes of course, availability of suitable assets and risk in respect to money due from the business.
- First death to second death. The agenda remains cash flow and predictability. Capital is the remaining opportunity. Limits are taxes, yield, risk and ease of management.
- Second death to settled estate. The agenda here is complex and should have been planned well ahead. The elements are equitable distribution, liquidity to meet immediate needs like taxes, debt and estate expenses, and speed. Estate that take to long to wind down cost more and tend to cause complications in the family. Poorly constructed planning, liquidity shortages and conflicts can drag the estate for years.
All succession plans and all estate plans share a common element. Once it is together and the reason for its existence and execution are known, every client thinks the same thing.
“I should have started sooner.”
Things that are hard to do in the moment are often easy to do and cheaper if you start ten years earlier.
For anyone who owns a business and expects to be mortal, planning both succession and your estate begins today. Anticipation of the problems, opportunities and techniques provides a smooth transition and it does so much less expensively in money, time and trouble, than last minute arrangements. The Ford Foundation arose weeks before Henry’s death.
Try not to leave a high cost, disruptive legacy.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
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