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eLegacy Connect


How Will You Hand Over the Reins?


By Kevin Spafford, eLegacyConnect A


LL BUSINESS OWNERS HAVE AN EXIT strategy, although they may not be aware of it. Tese strategies can be placed into three broad categories:


1. Lifetime transfer of ownership interest and management responsibility.


2. Estate plan implements the exit strategy. 3. Let the heirs worry about it. A. Lifetime Transfer of Ownership and Management.


Te optimal succession plan usually combines a lifetime transfer of both ownership and management of the busi- ness to the owner’s successor(s) with a contingency plan that becomes effective if the owner prematurely dies or be- comes disabled. A lifetime transfer of business ownership and manage-


ment responsibility allows the owner to guide and mentor the successors (management and ownership) during the transition process. In most cases, the current owner is the best person to facilitate these transitions. Te owner’s in- volvement in the transition also can inspire the confidence of employees and key outsiders. Te owner must have a great deal of confidence in the


successor to hand over the business during his lifetime. Beside the emotional attachment to the business, the own- er is likely to have continued financial ties that make him dependent on its future success. A management succes- sion plan that allows the owner to observe the successor as he or she gradually assumes increased responsibility should build the owner’s confidence in the successor and increase the owner’s willingness to make a lifetime transfer. B. Using the Estate Plan to Implement the Exit Strategy.


While transferring ownership and management responsi- bility during the owner’s life is optimal, many owners have no intention of retiring. Some owners are not ready or able


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to address all the family issues that are encompassed in a lifetime exit strategy, fearing that their succession deci- sions will cause family tensions. Tese owners oſten adopt an exit strategy using the estate plan to transfer business ownership at their death. Even though the ownership and management succes-


sion will not take place until the owner’s death, this is still a planned succession strategy. Terefore, the owner must decide who will acquire the ownership interest and how it


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