Blending Your Business Succession Plan with Your Estate Plan in Florida

Blast Off!  You’ve created an estate plan AND even put together a business succession plan for your family business.  Now, you need to ask yourself if they talk to each other? If not, this article will help you understand the concept of blending your business succession plan with your estate plan in Florida.

This is a critical question to avoid  potential implosion of the family business.

The question of how the business will continue to operate in the event of death of disability of an owner is where Florida estate planning and business continuity succession planning in Florida overlap. This is critical planning juncture and concerns blending your business succession plan with your estate plan in Florida.

Ask yourself right now DOES YOUR estate planning even include a business succession plan?  If you can’t answer confidently right now, do not pass go and call us to get your estate plan reviewed at no cost IF you mention this article.

The next question that will follows is HOW WELL WILL YOUR estate plan properly integrate the details or your business succession plan.  By integrate I mean to lay out a clear path that coordinates the buyout purchase of outstanding business interests possibly using certain designated insurance proceeds for this purpose.

DOES ALL OF THIS SOUND COMPLICATED or STRESSFUL?

IF SO, I SUGGEST THAT YOU MAN (OR WOMAN) UP!  Right now, things are NOT nearly as COMPLICATED or CONFUSING as the inevitable CHAOS that your loved ones will face trying to figure out what to do without a clear plan.

Let’s review your recommended next steps…

How to Unify Your Business Succession Plan and Your Florida Estate Plan?

Understanding the Process 

Business succession planning in Florida begins with a buyout or buy sell agreement in Florida. This can be a stand alone agreement or a provision in another agreement such as an LLC operating agreement in Florida. Buy sell agreements describe how an individual, or group of individuals, OR the company, may purchase a deceased or disabled owner’s shares or membership interest. Part of blending your business succession plan with your estate plan in Florida involves highlighting your buy-sell agreement.

Cross Purchase Buy-Sell Agreements vs. Entity Purchase Buy-Sell Agreements in Florida

With a cross purchase agreement, one partner or shareholder purchases the other partner or shareholders interests and the insurance would specify the buying partner as beneficiary of any life insurance policy that is used to fund the purchase.

With an entity purchase agreement, the company would be the beneficiary of the life insurance policy and would purchase the deceased or disabled owner’s interest.

Which form to choose is based upon the individual circumstances of the business and the goals of the company and owners as well as tax considerations which should be discussed with a qualified tax advisor.

The Impact of a Buy Sell Agreement on Other Estate Planning Documents in Florida

Whether you have an independent buy sell agreement OR have included it as a clause in your other Florida corporate or LLC documents, it needs to be cross referenced in order to avoid needless plan confusion.  Remember, your Florida revocable living trust was created by you as a conductor for the management and distribution of your estate assets in Florida and possibly other locations.  So, while this may be a bit oversimplified, your revocable living trust should say something like:

A buy-sell agreement has been signed by the company and/or partners dated…and this will supersede the Trust and dictate the terms of transferring the ownership of any deceased or disabled partner/owner.  

Likewise, your Florida LLC operating agreement or shareholder’s agreement for your Florida corporation should also make reference to the buy sell agreement by name and date and should also mention the priority of the buy sell agreement. All of this is necessary for blending your business succession plan with your estate plan in Florida

Epic Fail = Failure to Blend Your Buy Sell Agreement With Your Estate Plan

The failure to take the steps necessary for blending your business succession plan with your estate plan in Florida is an epic fail because dire litigation consequences often result.  Litigation results simply because the heirs get greedy and think it’d be a great idea to file a lawsuit for the business, envisioning truckloads of cash.  This is often true, for the lawyers.

So, focus with me….if your Florida revocable living trust simply states that all assets are to be distributed to the family members, without any mention of your buy-sell agreement, then blending your business succession plan with your estate plan in Florida is a priority. The buy-sell agreement allows a surviving partner to buy out the business according to a specific formula AND problems can arise if the family either wishes to take over the business or believes it is being undervalued by the desiring partner.  If the buy-sell agreement is not mentioned in the estate plan or trust, your trustee and family members are likely to be confused at best.  At worst, a legal storm will follow concerning the transfer of the business.

The Buy-Sell Agreement Written Clearly To Limit The Likelihood of Confusion and Litigation.

By properly drafted, I emphasize that a buy sell agreement should clearly memorialize the understanding of the company and the partners.  At a minimum, this agreement should clearly state who is buying out whom and what the conditions are to “trigger” this event.

The buy sell agreement may require that any partner must be totally disabled for at least 6 month prior to the triggering of a buy out of interest.  A buy sell agreement should also include a clear formula for valuing the company and interest in question at the time of the triggering event.  This may be as formal as hiring a licensed business valuation expert or as informal as applying a “multiple” to the owner’s benefit as of the last tax year.  Of course the company’s asset values may also be considered and this should be included in the valuation formula. This should all be considered when blending your business succession plan with your estate plan in Florida.

Helpful Tip: a buy sell agreement works hand in hand with a properly formulated strategic life insurance plan and this plan needs to be regularly audited to keep with with business valuation and market changes.

With these minimal essentials in place and integrated into your overall estate plan, needless confusion and disputes can be avoided during what can be very difficult times.

Steven J. Gibbs, Esq.

This article is updated from an original post dated May 5, 2016.