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A Roadmap to Succession Planning

August 14, 2018
Authors: June Wiyrick Flores
Publishers: HFO Apartment Investor Newsletter

Succession PlanningProfessional advisers are always talking about succession planning for their clients who own businesses. The definition of a business is broad—and also includes limited liability companies which own real estate investments that may be either self-managed or managed by a third-party property manager. Succession planning can be daunting because it can encompass family dynamics and legal and tax issues, so many business owners put it off. But one thing is sure: at some time during a business owner’s lifetime, he or she will leave the business, whether it is a voluntary departure by a sale or retirement or an involuntary departure as a result of incapacity or death. So why not plan for that departure?

Who should be involved in helping a business owner develop a succession plan? The owner should have a “team” of advisers that should include legal, financial, and tax advisers. The owner will need estate planning and business legal advice for the succession plan. The financial adviser can help the owner determine what the owner can afford—can the business be gifted to a family member or employee, or does the owner need a liquidity event to provide funds for retirement? The other issue that often arises for businesses with real estate investments are loans that are secured by the real estate, which includes a personal guarantee. Do the successors have sufficient financial assets to be able to keep those loans in place? And as with any other business transaction, income and estate tax issues always need to be considered.

Another advisor that an owner may want to consider is a business consultant to assist the owner with readying the business for a sale, or developing a successor manager or owner from within the company if it is an active business. The owner may also need assistance in transitioning out of his or her involvement in the business. It is very useful when all of an owner’s advisory team members are working together, and each member understands the owner’s goals. This will require some financial investment by the owner.

There are several basic options for transitioning a business: selling the business, gifting the business, closing the business, and a combination of these options. Each owner and business should have an individualized plan—one that works for the owner and his or her business. The process of developing a succession plan is not something that can be accomplished in one meeting. A business owner must consider many questions and issues in developing his or her succession plan. The business owner should first work on developing a short-term plan and then formulate a long-term plan.

If the owner experiences a sudden life event that limits the owner’s ability to manage the business, has the owner identified:

  • The person who will manage the business for a short-term period and signed the appropriate documents?
  • Who has signing authority for the business’s financial accounts?
  • Who can sign the payroll checks?
  • Who has authority to enter into contracts on behalf of the business, whether they are contracts for the purchase of inventory or the renewal of a lease or a line of credit?
  • What financial benefits the business owner needs from the business? And whether that continues if a third party is required to provide the same services as the owner has provided to the business?
  • A power of attorney may be useful for some types of business entities to name a person to manage the business and handle these activities.

What if the sudden event limits the owner’s ability to permanently manage the business because the business owner is permanently incapacitated or has passed away?

  • Who will be able to manage the business long-term?
  • Does the owner’s spouse have the capability and desire to continue the business operations?
  • What income does the owner’s spouse need from the business operations to maintain his or her lifestyle?
  • Who will ultimately receive the business, or should the business be sold?

The long-term plan is often the most difficult part of succession planning. But, if the business owner does not engage in this planning, then the transition upon death may be very difficult for the owner’s family and have unintended consequences. The transition or succession of a business with a written plan is generally more successful than a succession without a plan.

June Wiyrick Flores is a partner at Miller Nash Graham & Dunn attorneys at law. She specializes in the implementation of family and closely held businesses' implementation of succession strategies. She can be reached by phone at (503) 205-2408 and by email at

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