Succession and Estate planning: why the two go hand in hand for family businesses

Kirsten Taylor-Martin
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Over the years many articles have been written about succession planning and educating family businesses on the importance of ensuring the business stays in the family for generations to come. The results from the Family Business Survey 2021 showed 65% of family businesses with a succession plan wanted to keep the business in the family, but the most staggering statistic resulting from the survey was of the families who sat together and documented a succession plan, 66% do not have their estate plans in order.

A succession plan can be worthless without an aligned Estate Plan

In many cases we see families who have agreed on a succession plan, their views are aligned and they have documented their plan, but their plan has no legal backing and even worse – it could contradict their succession plan.

The easiest way to explain problems that could occur is through examples. In many cases when working on a succession plan, the family will agree to keep the business within their bloodlines.


Two sisters running a business together both agree they want the business to remain in the immediate family, and neither wants to end up in business with their brother-in- law. When asked if they have developed an estate plan, both sisters say they have done a will, and left everything to their husbands. So although they have a succession plan and both agreed to it, their legal documentation achieves the opposite outcome to their plan. This will either result in an estate battle or worse, could result in the demise of the family business.

When preparing an estate plan and succession plan simultaneously, it enables the sisters to ascertain that whilst they don’t want to work with their brother-in-laws, they do want them looked after financially. This allows the sisters to look at alternatives such as insurance, to ensure that all of their desired outcomes are achieved, and the business and their family will remain in a financially viable state. 


Legal structure key to a succession plan

The second problem we often see when a family agrees on a succession plan is they don’t fully understand the legal structure the business is in – and in many cases, the family business is run through a family trust.


The family agrees the business will be left to the eldest son, and all the personal assets to their daughter. However, the parents don’t own the business, and assets held in the family trust are not covered by their will. In this example, what will happen legally is the business will remain in the family trust; the sister will receive all of the personal assets and the brother will unfortunately walk away empty-handed. Despite the family’s best intentions, the outcome will likely result in arguments over the estate and unforeseen pressure will be placed on the business.


How can we help?

When preparing a succession plan, we finish the process with an extensive action plan. This may include put and call options, shareholder agreements and Estate plans. These steps are very important as they put the legal steps around the family wishes. They are the necessary finishing touches to an effective succession plan.

As important as it is for families to meet, discuss and agree on a succession plan for the future of the business, we cannot stress enough the importance of preparing your estate plans together as a family, ensuring they are aligned and achieve the same outcome. 

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