TBC Information Network

Teal, Becker & Chiaramonte offering valuable insights, impressions and commentary on today's financial and business world.

Succession Planning

Operating a business is a tremendous investment of time and effort. Years of hard work have been put into building your company into what it is today.  This, coupled with the fact that many companies have seen record profits recently, the importance of having a business plan that extends into the future cannot be overstated.  Strategic succession planning ensures your company will continue to thrive with the next generation of leadership.  Who is best suited to lead the company in the future?  Are your children passionate, but also capable?  Is there an individual currently employed that is ready for this responsibility?  How involved will you have to be? How involved do you want to be?  These questions, among others, are questions that business owners need to answer as they approach this next chapter of their lives.

Planning for the future takes time, and several variables require careful consideration.  Business development, management and workplace culture may be important factors while developing a succession plan.  In many cases, current employees are ready to tackle these factors along with other challenges that lay ahead.  However, it is important to consider the value in searching for external individuals with perspectives outside of the Company.

The legal and regulatory environment is a significant factor when developing a succession plan, and is ever-changing.  President Biden’s proposed American Families Plan calls for changes to what is known as basis “step up” for assets received by estate beneficiaries. Under current tax law, beneficiaries inherit estate assets with a basis value that is “stepped up” to the market value at the decedent’s date of death, therefore minimizing the gain a beneficiary would recognize when the inherited assets are sold.  Under President Biden’s proposed plan, the beneficiaries would inherit estate assets with the same basis value as the decedent, opening the door to potential increases in capital gains tax.  The proposal does state “The reform will be designed with protections so that family-owned businesses and farms will not have to pay taxes when given to heirs who continue to run the business,” however, it is still largely unclear how these protections would work in practice.

The House Ways and Means Committee is currently considering a reconciliation bill that could further influence future decisions.  The bill includes a provision that accelerates the expiration of estate and gift tax rate levels and would cut the lifetime estate, gift and generation skipping tax exemptions from the current $11.7 million level to approximately $5-6 million per taxpayer beginning in January 2022.  These provisions, though not yet law, are an example of other factors to consider when developing a succession plan.

Often times it is easier to reflect on our past selves, experiences, and mistakes. It is much harder to look ahead to our future selves and circumstances.  Your succession planning should be started sooner rather than later, with careful and honest consideration of your situation, and should be reviewed and updated on a regular basis.  We are available to have these conversations with you.  Please contact your trusted TBC advisor for more information or to start the process.