Looking at the leaders and managers with a tactical lens can keep a business from experiencing financial loss or production gaps if someone from management (or a small business owner) leaves for whatever reason. A business is nothing if not a combination of talented people who make important decisions that keep business or farm running. When one of those people (including yourself) steps down, planned or unplanned, you’ll need a plan to help the successor pick up operations where they left off with minimal disruption. 

Let’s look at business succession planning and what’s needed to build out a business succession plan for your own business. 

What Is a Business Succession Plan?

Succession plans are documents containing information about any critical positions within an organization and any action steps individuals who are taking over those roles need to follow. This type of preparation ensures that you have the right people moving into the job and guarantees that they have the necessary data to make it a successful transition.

A business succession plan generally involves a few essential elements:

Key Positions

Depending on your organization’s size, you may have one or multiple key employee positions that need to be planned for. You should sit down with your team and determine which roles should have clearly outlined the next steps in the case of a vacancy.

Necessary Skills

Once the applicable jobs have been selected for succession planning, it’s crucial that the current people in those roles specify and highlight the skills and competencies the next person must have to successfully transition into the job. This will help the business to continue running smoothly no matter who’s in charge.

Data and Documents

One of the most important parts of succession planning is gathering all critical information about the role and documenting any relevant data or knowledge that can assist the next person. This could include:

• A long-term strategic vision for the business.
• The organizational structure of the business.
• Tax documents or financial records.
• Estate planning information.
• Bylaws.
• Operating agreement or partnership agreement.
• Ownership, equity or stock agreement.
• Shareholder data.
• Employee benefits and health care information.
• Unpaid business loan information.

The Importance of Succession Planning

You may have heard the popular phrase, “If you fail to plan, you plan to fail,” so why are so few businesses taking the necessary steps to future-proof their organization? According to Deloitte, regarding a typical family business, only 30% survive into the second generation, 12% make it into the third and only about 3% operate into the fourth generation and beyond. This is most likely due to a lack of planning and preparation for how the business will function once the original head of operations is gone. If you avoid planning for the what-ifs, your company may not get a second chance to bounce back and find success.

We do understand why it may seem unnecessary to document a strategy for the next person to take over. You may either feel confident that you’ll stay at the company for a while or you believe the next person won’t need your thoughts and processes laid out in writing. But, sadly, things can change at a moment’s notice and it’s always better to be prepared — even if you think it’s not entirely needed.

If you go through the business succession planning process, you’ll most likely experience the following benefits:

Know Who Will Be the Best Fit

Whether you’ve already selected your successor or will need to find someone in the future, thinking through the skills and experience necessary for the job will help you and your team thoroughly understand who may be the most suitable to take over. It also allows you (or the current leadership role) to be part of the selection process — and, who knows the job better than the person currently doing it?

Have a Structure for Training

By laying out any potential abilities or important tasks that must be captained by the person who’s in line to take over, your team can provide a solid blueprint for training and development when that person is hired. This ensures there aren’t skill gaps in the transition from one person to the next.

Plan for Long-Term Success

Change can happen quickly. By taking steps right now, you can ensure that your company is prepared for whatever happens in the future. As you think about your financial goals for the next few years, anticipate how you or your leadership team’s positions can impact those aspirations for the better. Then, write down everything that you do for your job and any information you can provide that can ensure the business doesn’t get thrown off-course by a change of staff.

Succession Checklist: Creating a Future-Thinking Plan

Creating a succession plan is necessary for business owners, essential employees or people in critical positions within a family business or corporate organization, and now it’s time to get make your own. But, where exactly should you start? Follow these steps to smoothly map out your successful transition:

1. Know How the Structure of Your Business Affects Its Future

If you’re the sole proprietor of a business or farm, you and the company are basically one and the same. It’s not a pleasant thought, but if you meet an untimely end, so does your business. Its assets will essentially be liquidated and used to pay off any debts. Any money that’s left over will be distributed based on the terms of your will.

If you know that you want your business to thrive long after you’re gone, then it may be in your best interest to register it as an LLC or a corporation. This setup gives you more options in terms of transferring your stake in the business onto a beneficiary should you pass away, become unable to work or choose to go into retirement. 

2. Appoint a Willing Successor Before You Actually Need To

How easy this task is varies depending on the type of company but tends to be more challenging for small and medium-sized businesses and family-owned companies. A corporation owner or department head may have a management staff that it can choose from when considering a successor. A family-owned farm, on the other hand, may have a smaller pool of talent if it intends to keep the business in the family. Either way, it’s important to figure out what will become of your business after you or one of your partners is gone before you have any intention of leaving.

3. Consider the Financial Implications of Your Decision

Transferring your interest in a company onto a beneficiary may leave you or the recipient liable to certain taxes such as gift tax or estate tax. Consequently, it’s critical to figure out exactly how you intend to transfer the company to someone else and whether you have adequate financial resources to cover any taxes that come with it.

This is where estate planning can get a little bit complicated. There are plenty of possibilities available — using a life insurance policy to cover estate and/or gift taxes, reducing the taxable assets by selling to a future leader below the company’s value or having the successor outright purchase the whole company — but the prime option for you will ultimately depend on your circumstances. Your best course of action here is to get in touch with an attorney or tax advisor to assess your options.

4. Document Your Business Strategies, Policies and Processes

Whether you’re one of the main business owners or in charge of a specific department, clearly and formally document your strategies, policies and procedures — both for day-to-day functions and for emergency situations. Ideally, if you’ve proactively scouted out your potential successor(s) ahead of time, they will already be familiar with the mission and the work that needs to be done. Either way, it’s crucial that you have a documented template, at least on a high level, for how you do what you do. This will make it much easier to transition operations onto successors without rocking the boat or disrupting the customer or client experience.

Develop Your Succession Plan With Help

Succession planning isn’t simple, and you’ll need a lot more than this high-level guide to cover all your bases. However, it’s one of the most important — and yet most often-overlooked — aspects of being a company owner or decision-maker. And, you don’t have to do it alone. Fortress Union Bank offers industry advice and aid for all types of business structures, and we can assist you with your succession planning.

Ready to create a business legacy that will withstand the test of time? Get in touch with the experts at Fortress Union Bank today. Our trust officers or insurance agents can help you plan for the future transition of your business. 

Post updated. Originally published June 2020. 

Are you looking for more advice for protecting and growing your dream business? Listen to Dream, Plan, Live: the Fortress Union Bank podcast for more tips from the business experts in your community and at Fortress Union Bank.

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The post Create an effective business succession plan: a checklist for passing the torch appeared first on Fortress Union Bank.

For most people, thinking or speaking about you or a loved one passing away is a very tough subject to breach, making it all too easy to avoid planning for it. But this can be a very costly mistake because it leaves room for confusion and difficulty when having to make decisions once that time does come.

Continue reading to discover more about what end of life decisions you may need to make, the information you should have handy when planning should take place, and mistakes to avoid.

What is end of life planning?

End of life planning refers to all the steps a person takes to get their affairs in order and plan for the future. Advance care planning takes care of you. It addresses future decisions regarding medical care, which generally involves a person or their caregiver completing a living will and a healthcare proxy.  Legal and estate planning, like a last will and testament or trust, will help determine what will happen to your money, belongings, property and pets.

This process is important because it gives your family the ability to follow through on your desires and directives after you’re gone, which takes the burden of making big decisions on your behalf off their shoulders. It also gives you the power to organize your belongings and arrangements exactly how you’d like.

Let’s take a closer look at exactly what to expect during the planning procedure:

Advance care and estate planning guide

Going through with an advance care plan may seem like an impossible task to accomplish, but everything can be done if you take things one step at a time. Following a list and meticulously tracking your progress is a great way to ensure things are organized and getting checked off.

Prepare your documents

You have the right to decide what actions should be taken after your or a loved one’s passing by filing the necessary documents. According to the National Institute of Aging, these documents include:

• Living will: This legal document, also known as an advance directive, indicates your preferences for medical care or life-sustaining treatment if you can’t communicate. They include palliative care treatments like tube feeding, dialysis, resuscitation, comfort and life care, organ and tissue donation and hospice care.
• Last will and testament: A last will and testament lets you decide how you wish to distribute your assets after death. With this legal document, you will assign beneficiaries to inherit your property and personal belongings. You can also use your will to indicate funeral preferences, especially if you wish to set aside specific money to go toward those expenses.
• Living trust: By creating a living trust, you can manage your assets and create an estate plan while you’re still living and settle who will receive them after you pass away.
• Financial power of attorney: By filling this document out, you choose the person who you wish to act on your behalf to help manage your financial affairs.
• Organ and tissue donation: You can register as an organ donor if you wish to donate your organs or tissues after your death.
• Personal and financial records: Take time to ensure that all of your important papers are ready so all the right people can access them if you have a medical emergency. Also, include any additional information that people may need to know, like your medications or any upcoming bills you must pay.

List your assets

The next step in advance care planning is to document all assets — possessions you will pass down to a beneficiary — to ensure everything is accounted for. Here are some of the most common types of assets:

• Savings and checking accounts.
• Cash or other forms of money.
• Real estate and land.
• Investments, stocks or bonds.
• Retirement accounts.
• Life insurance policies.
• Artwork or collectibles.
• Jewelry or other valuables.
• Corporate assets.

Determine housing

This step isn’t necessary for everyone, especially if this planning process is being completed before there’s an emergency. But if you need to consider eldercare housing, start by deciding what living quarters style you would like. Some frequently chosen options include an assisted living facility, nursing facility or in-home care.

Plan funeral and burial arrangements

We know this step in organizing your affairs is one of the most difficult, but it can be the kindest thing you do for your loved ones. If a memorial service or funeral arrangements aren’t set before they’re absolutely necessary, then your family members will have to plan during an incredibly difficult time. That being said, don’t feel like you have to do this part alone. Having someone you trust help you make these decisions can alleviate some of the burden.

Ensure your pets are taken care of

If you have one or multiple pets, they need to be given a plan, as well. Whether a family member or friend wants to start caring for your beloved animal, or you’re hoping that they will be adopted by a loving family, this needs to be planned and discussed with whoever is helping you get your affairs in order.

What beneficiaries can expect

The executor — the person in charge of keeping everyone up to date with what’s going on — will reach out to all beneficiaries upon the death of a loved one or friend. This person will ensure that all needs are taken care of, bills are paid and belongings are accounted for. Then, assets will be distributed based on the wishes stated in either the will or trust.

When you should start planning

Just like any other plan or preparedness, it’s never too early to start. If advance care planning is a process that you’re nervous about starting, try doing small sections over time to reduce some of the stress of completing every step at once. If you prefer to get your affairs in order in a shorter amount of time, give yourself a few weeks to complete the necessary steps.

The best way to plan is when you’re healthy and able to make all the proper decisions. That means you could start planning right now and be better prepared and at peace that your intentions are laid out and ready.

Ensure a smooth planning process

To make this planning process as smooth as possible, we suggest:

• Start planning now – don’t wait. Even simple steps like adding beneficiaries to checking and savings accounts will ensure a quick transition upon your passing keeping money out of probate.
• Name an executor or health care proxy who you trust completely.
• Don’t get tripped up by every detail of the process. Reach out to professionals for guidance on parts that confuse you.
• Communicate your wishes to your loved ones.

We can’t stress it enough. Communicate your wishes to your family and loved ones. Deciding where your property goes when you’re gone can be stressful; however, it’s important that your family knows what you want to do with your property and money now so there are no surprises later.

End of life planning is a loving act and a gift for those involved because it gives you ease of mind knowing that your affairs are taken care of. It also gives loved ones peace with the fact that everyone is on the same page and comfortably prepared for anything that may happen next. Even so, it may be difficult to know where to start, considering there are many factors to think about and documents that need to be reviewed.

Download this handy guide to get started (PDF)

Fortress Union Bank can help you get your financial records and documents in line, or answer any questions you may have when you’re ready to begin the planning process.  From estate planning services to setting up account beneficiaries, we’re here to help.

Our Trust Services team has years of experience in estate planning, trust administration and serving as executors for estates. Our banking professionals can also help review your accounts to ensure beneficiaries are properly set up for each one.

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The post End of life planning: How to effectively prepare appeared first on Fortress Union Bank.

From the vehicle we drive, picking out what’s for dinner, and the bank accounts we choose, we use products and services that fall in our comfort zone. While that saves time in the short run, over the long term, what we don’t know can cost us time – and money.

And when it comes to your estate planning, you and your family need to use the best tools available. You need a system that is flexible for your needs, secure, and financially beneficial, like a revocable living trust.

What It Is and What It Does

A living trust can help you manage your assets or protect you should you become ill, disabled, or challenged by the symptoms of aging. The term “living trust” typically describes a trust created during your lifetime. Most living trusts are written to permit you to revoke or amend them whenever you wish to do so.

A revocable living trust is practical for many individuals and families because it transfers assets in three crucial areas: control, probate, and taxes.

1. Control

The primary purpose of this type of Trust is to distribute assets to the beneficiaries of the Trust as prescribed by the Grantor, who is the person that established it.

We all know that life can change dramatically and quickly. A revocable living trust can be amended, added to, or revoked at any juncture during the Grantor’s competent lifetime. A second marriage, a blended family, or an ownership change in the family business are a few trigger events that make this Trust useful. You have the flexibility to make changes as your situation changes.

A revocable living trust also affords the Grantor the freedom to transfer management of the assets in the Trust to a professional third party. This third party can do everything from paying the bills to managing the investments.

2. Probate

Probate is the examination and transfer administration of estate assets previously owned by a deceased person. A well-planned and executed will and revocable living trust working together can help minimize or, in some cases, eliminate probate. This is attractive because:

• While revocable living trusts are flexible, the formal probate process can be lengthy, as it is under the protection of the law.
• While revocable living trusts are private, probate is a matter of public record, which many families find undesirable.
• Probate can be a slow process. Depending on state law, the complexity of the estate and the organization, and the accuracy of the information needed, probate can take from just a few months to a few years. Having assets in a revocable living trust can help expedite that process.

3. Taxes

By moving assets from your ownership to your revocable living trust, those assets are effectively removed from your estate. In addition to avoiding probate, assets get passed on without adding to your tab to Uncle Sam.

As hopeful as we all might be that inheritance tax relief will continue to improve, there’s no certainty. Reducing your taxable estate is prudent and sensible.

Now What?

A revocable living trust is one of the most effective estate management tools.

An experienced Trust professional can help you identify and determine how this Trust can benefit you. And help you explore additional options to manage and transfer assets safely and effectively to achieve the outcomes you want.

Do you have more questions about setting up a revocable living trust?

Contact an experienced professional with Fortress Union Bank Trust Services team.

Post updated. Originally published May 2017.

The post Revocable living trust – the trust everyone can use appeared first on Fortress Union Bank.

Succession and estate planning can be difficult and emotional for many American farms. However, they are necessary for the health of the farm and the future of the family members involved. Families need to know what will happen when the leaders and decision-makers of these farms either retire or pass away. Lack of direction in transferring the family farm can make moving forward difficult for everyone involved.

Start discussions early

Children who grow up on a family farm likely have been doing farm-related chores for most of their lives. It’s not unheard of for a child to picture themselves being the boss who runs the farm one day. However, it’s important to remember that just because you’re in the family doesn’t mean you’re best suited to take over.

On Pasture pointed out that making these decisions isn’t easy and should take many years to work out. A few things that help along the way are:

• The next generation should get an education and life experience outside the farm through college or the military.
• The next generation should work on the farm as average laborers to get a good feel for full-time farm life. They should also learn the basics of running a farm operation as a business. This way, there won’t be any surprises.
• The parents need to provide a clear path to ownership, so children aren’t left in the dark about when or if they’ll inherit the farm one day.

Bring in a third party

In the world of family farms, it can be challenging to distinguish family from farm. When many relatives associate the family legacy with the farm’s success, stakes are high for a transition to go smoothly.

And when there’s that much pressure on a series of objectives and actions, it’s not uncommon for everyone to bring their diverging viewpoints on how future generations should handle the operation. A room of 10 people could be filled with ten conflicting opinions.

To ease the tension and help everyone get on the same page, Farming Life suggested bringing in a knowledgeable third party with expertise in family farm transitions and estate planning. This person will be able to listen to each family member’s opinions from a neutral standpoint and make recommendations on how to move forward. With a detached third party from the business, they can look at the situation objectively.

Planning out who will inherit the farm and all its responsibilities is hardly an easy discussion.

There are many examples of successful transitions between one generation and another. But there are also plenty of times when lack of communication or direction causes great strife between family members. Outside of family conflict, the farm, as a business, can suffer.

Don’t neglect to give your family a clear roadmap; careful future planning is never wrong. Contact Fortress Union Bank’s to discuss options for your farm’s future today.

Updated. Original post published April 2017.

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The post Transferring the family farm to the next generation appeared first on Fortress Union Bank.