What is the difference between a succession plan and an estate plan?


It’s an interesting question, especially for clients that have small businesses or businesses that they would like to see continue operating after their own demise. The trust, the estate plan, is going to own the business. They’re going to be the owner, the shareholder, or the member of the LLC or the partner and the partnership, but not necessarily the operator. And what the small business owner needs to consider is, who’s going to continue running that business for the benefit of the family after they’re no longer able to do so, whether they’re incapacitated or they’ve passed away.

So a small business owner needs to give thought to how does that business succeeds afterward. That’s a succession plan. Who takes over? What will the rules be? Now I’ll be very candid and tell you that most senior generation business owners, even if they have their children working in the business, don’t always think that they’re ready and capable to handle that business. So as part of the estate planning process, we need to explore that and discuss that so that the entire plan is integrated and we have an expected result for unfortunate things like incapacity or the death of the business owner.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values.