Generally speaking, you don’t want to grant ownership to family members who aren’t involved in the business.Instead, many succession plans will include a buy-sell agreement work in the business, you typically still want to pick a single successor, as opposed to splitting ownership evenly between your heirs.
If you choose to draft a buy-sell agreement with your co-owner, you’ll want to make sure a life insurance policy is stipulated in the agreement.
We recommend speaking with an expert for specific help on the type of policy you’ll need.
Your co-owner needs to be prepared to buy-out your shares, theoretically, at any moment.
Since not everyone keeps liquid cash around in this magnitude, many businesses will fund their plan with life insurance.
First things first, there is the question of will take over.
If you have just one family member who works alongside you, this is an easy decision.Term life insurance is relatively inexpensive, and can offset a lot of costs in the event of an owner’s death.Permanent life insurance is a bit more expensive, but can likewise payout in the event of retirement or disability.It can get complicated when you have multiple children, nieces or nephews, and more than one are interested in taking over the business.In this case, you need to provide clear instructions on other heirs will be compensated.Here are the 5 most common types of small business succession plans in detail: If you founded your business with a partner, you may be considering your co-owner(s) as a potential successor.Many partnerships draft a mutual agreement that, in the event of one owner’s untimely death or disability, the remaining owner(s) will agree to purchase their business interest from their next of kin.This usually involves a buy-sell agreement, secured with a life insurance policy or loan.There are 5 common ways to transfer ownership of your business: This guide covers each of these succession plan types in greater detail.This is compounded by the fact that 2nd generation businesses are risky; only 30% stay afloat after an inheritance.Altogether, this should beg the question; If your successor is skilled and business savvy, then perhaps the answer is ‘yes.’ If not, you may consider selling your business to a co-owner, key employee, or outside buyer instead.