Why Business Owners Need a Backup Succession Plan – San Gabriel Valley Tribune

Last week, my co-columnist Teri Parker reviewed the broad options for corporate succession planning.

Even the best plans need a backup plan. If you become disabled or die before your succession plan (if you have one at all) is implemented, what then?

Make sure you have aligned your estate plan and other arrangements, if any, with your business succession plan.

your living trust

If you own a business, you should have a trust. And that trust should include specific instructions on how to run your business.

As long as you are alive and have the mental capacity to live, you serve as a trustee of your trust. Your trust should also designate a successor trustee to step in if you are unable to do so. But the trustee that manages your bank accounts, house, cat, investment accounts, and the like doesn’t have to be the trustee that manages your business.

Consider appointing a “special trustee” to act solely as a trustee of your company. If you have a key person in your company, or perhaps a specific family member with knowledge of your business, you can only appoint that person as a trustee for the company. The special trustee has only certain powers and works with the successor trustee to ensure that business continues uninterrupted.

You may want to consider appointing an advisory board or committee to step in to run the business or advise your trustee on running the business if you are unable to do so.

If you create a written business plan, make sure your trust references the plan and directs your successor trustee and special trustee to adhere to the plan.

Power of attorney

If your company is owned by your trust (i.e. the shares are in your trust’s name or you have assigned your company shares in a limited liability company and/or partnership shares to your trust), your successor or special trustee will assume responsibility in the event of your Incapacity for work.

It gets a little trickier if your business is a sole proprietorship. I often see clients who keep business accounts separate from their personal accounts and sometimes labeled “doing business as”. If these accounts are not in the name of your trust, you should be sure that you have issued a valid Power of Attorney allowing another person to access the account and act on your behalf in the event of your incapacity. (Also, ask your attorney why this account should probably be in your trust.)

Purchase/Sale Agreement

If you have partners in your business – whether you are a minority or majority owner, love your partners or hate them, or even if your partners are family members – you should have a purchase/sale agreement that carefully defines what will happen if you do dies, becomes disabled, retires, files for bankruptcy, or divorces.

A purchase and sale agreement (also called a shareholder agreement) is generally used for corporations with more than one shareholder. For an LLC, the terms would be set out in an operating agreement, and for a partnership, in a… you get it, a partnership agreement.

Such an agreement establishes who has the right or option to purchase you or your heirs. What are the conditions for a purchase? Is the buyout mandatory or optional? If optional, at their choice (the selling party? the company? the other partners?

The agreement should be concluded as soon as there is more than one entrepreneur – a time when everyone understands each other and no one knows who will be the party that the agreement will ultimately affect. You may like being in business with your partners, but do you want to be in business with your spouse or children? A purchase/sale agreement can ensure that in the event of your death or incapacity, your interest will be purchased in a manner that provides for your family and allows your business to continue.

This type of business succession planning also includes looking at the disability and life insurance of your company’s most important employees, including yourself.


If your business requires specific licenses—doctor, attorney, contractors, bars or alcohol-licensed businesses, etc.—make sure you designate a properly licensed party to cover for you in an emergency. The time between your death and your disability and the sale of your company is decisive for the preservation of value. Without proper licenses, you might find that you don’t have a business.

We all hope for a happy, restful, and worry-free retirement. A little planning ahead, including planning for the unexpected, will help you get there.

Teresa J. Rhyne is the principal counsel at The Teresa Rhyne Law Group, a PC with offices in Riverside and Paso Robles, CA. Her practice emphasizes comprehensive estate planning, trust management and planning for business owners.


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