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May 09, 2023
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Succession Planning vs. Estate Planning: Key Differences Explained

Succession planning and estate planning may sound similar, but they serve distinct purposes. Let's explore the differences between the two:

Succession Planning: This focuses directly on the continuity of a business. It involves creating a structured plan for the seamless transition of leadership, identifying the next-in-line successor, and effectively passing on the business legacy.

Estate Planning: Estate planning encompasses all assets within an individual's estate, which includes ownership interests in closely held businesses. It aims to facilitate the intergenerational transfer of family wealth and assets.

In the realm of succession planning, key considerations include:

  1. Business Viability: Is the business sustainable for the next generation? If family members not currently involved in the business plan to join, what is their vision? How does their vision align with the current business strategy and the aspirations of other family members interested in the business?

  2. Selling the Business: Should the business be sold to ensure future financial security?

  3. Qualifications and Training: If the business is to be passed down, who will assume leadership? Are they adequately qualified and trained for the role, or can they be prepared for it?

On the other hand, in estate planning, business owners should consider:

  1. Wealth Sources: Identify all sources of wealth, encompassing various asset types, and assess potential estate tax exposure.

  2. Financial Security: Define the desired level of financial security and evaluate the wealth surplus or shortfall in relation to that goal.

  3. Insurance and Investments: Examine insurance and investment portfolios and explore their potential use as liquidity to cover estate tax obligations.

  4. End-of-Life Planning: Develop a plan for healthcare directives, funeral expenses, and the distribution of assets upon passing.

By distinguishing between these two critical planning processes, individuals and business owners can ensure a comprehensive approach to safeguarding their financial future and preserving their legacy