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'Life planning' means fairer succession.

I recently received a phone call that reminded me of a very sobering fact: Business owners are still trying to use an estate plan as their succession plan. And local advisers who are anxious to retain their clients are encouraging this disparity in planning.

The man on the phone was 52 years old and his father was 76. "Dad and Mom still own 51% of the voting stock," the caller said. His attorney advises his father against any outside intervention by a consultant because his estate plan is in place and he has complete confidence in its ability to handle the situation after he and his wife are gone.

The issues in the family were obvious. Of the five siblings, only two worked in the business, yet all had received equal shares of stock as gifts over the years at Christmas, and the will was set up to pass all stock equally at the parents' death to each of the five children.

The two sons working in the firm since age 22 felt this was unfair because they had added to the business' value by working in the company for more than 20 years.

Questions to Consider

What form of compensation will the nonactive family members get from the business? How much will it be? Will it be a dividend or distribution? What if the active family members want to reinvest the money for expansion or new equipment?

If the active members want to buy out the inactive siblings, how will the stock price be valued? Will the compensation of the active be controlled by the nonactive family members? What is "fair" and how can this situation be handled?

Life planning is the "key," and unfortunately, many business owners are advised by territorial counsel to unintentionally leave legacies of silently ticking time bombs to the families that they love and to their loyal employees.

Death planning is simply putting together a good estate plan. It becomes the foundation of your succession plan. There are four reasons to put a will and trusts in place:

* to assure your spouse's security;

* to create equity among your children;

* to transfer your business;

* to save estate taxes.

Attorneys are the people who draw these plans, and for the most part, they believe the entire succession plan is in place if the will is up to date. Unfortunately, the plans in the will do not "kick in" until you die. This is purely "death planning."

Life planning is the key to a good succession plan, and is much more fun and interesting to put together. This plan simply states what we will do with our assets while we are alive. Life planning includes the following:

* financial security for parents;

* family values development;

* a family mission statement;

* a business plan;

* successor training and leadership development;

* choosing the successor;

* preparing for retirement;

* career mapping for the entire family;

* participation policy for family;

* transfer of ownership and control;

* retaining key nonfamily employees;

* developing new management team;

* an emergency plan for succession crisis;

* developing a family council;

* activating board of directors.

Many business owners find succession planning opens the doors to creating something strong enough to endure beyond their lifetime or estate plan. Succession planning enables them to have control over their own destiny while passing on opportunity to create an even stronger company for the family.

All of this planning magnifies the benefits of the years of hard work. In effect, it is the "final test of greatness," according to management consultant Peter Drucker.
COPYRIGHT 1992 American Foundry Society, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Henning, Mike
Publication:Modern Casting
Date:Nov 1, 1992
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