Contributed Column

Planning Matters

Facing the reality of planning for succession in a family business

by Stephen A. Unsworth and David A. Barra, Unsworth & Barra PLC, Essex Junction

Many articles have been written about the importance and benefits of buy-sell agreements, deferred compensation agreements, and life insurance in family business succession planning. While these may prove valuable in planning for the transition of a family business from one generation to another, none will come into play until the business owner is prepared to face reality.

Once the owner has faced reality, advisers can come in to calculate the costs of that reality and plan to reduce them. What do we mean by facing reality?

Basically, an owner must realize that his or her current stage of succession planning — or lack thereof — might be a poor plan with predictable and negative consequences for the owner’s family. If no planning has been done, the costs of failing to face the facts are easily seen.

Calculating the costs of that reality begins with answering a series of questions designed to direct focus to the probable consequences of a lack of estate planning. Following are examples of those questions.

• When you want to retire, will your family be capable of running your business?

• When you retire, will your partners voluntarily pay you the value of your interest in the business?

• If you die prematurely, will your business have the necessary capital to survive?

• If you die unexpectedly, will your partners voluntarily pay your heirs the value of your interest in the business?

• Do you know the facts about joint tenancy?

• Do you have plans to provide for your special-needs child or other family member in the event of your passing?

• Are you protected from nursing home expenses costing you everything? Vermont has some of the highest nursing home rates in the United States.

• Do you have a power of attorney in place with someone who can make financial decisions for you in the event you become disabled?

If the answer to all the questions is no — or “I don’t know” — then both the heirs and the family business will be in jeopardy if nothing is done.

• A final question: When you die, will your heirs have to sell some or all of the family business just to pay the estate taxes?

If the answer to this is yes, the need to take action becomes clear.

“Action” can take many forms. For example, a buy-sell agreement can be entered into to ensure that the owner or his or her heirs are paid the value of the owner’s interest. Life insurance can be purchased or other arrangements made to fund the payments required at the owner’s retirement or death. Gift planning can reduce — or eliminate — estate taxes otherwise due.

Planning matters. To fully determine what direction your planning should take, you should seek help. An experienced estate planning attorney who focuses his or her practice in the area can help you develop a coordinated estate plan that includes protecting your business. •

Attorneys Unsworth and Barra are partners in the law firm of Unsworth & Barra PLC, the only firm accepted into the Academy of Estate Planning Attorneys in the state of Vermont. Unsworth & Barra may be reached at 879-7133 or

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