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Generally speaking, you don’t want to grant ownership to family members who aren’t involved in the business.Instead, many succession plans will include a buy-sell agreement work in the business, you typically still want to pick a single successor, as opposed to splitting ownership evenly between your heirs.
Succession planning or business continuation funded with life insurance provides flexibility for business owners.
Although term insurance can be used to meet the needed funds at death, it’s the versatility of permanent life insurance that makes it the funding vehicle of choice to meet multiple goals.
This type of agreement can help ease the burden of an unexpected transition— for the business and family members alike.
A spouse might be interested in keeping their shares, but may not have the time investment or experience to help it blossom.
If a purchase is involved, the sale price and purchase terms are also clearly outlined, relieving some of the stress for the departing owner’s family.
In other words, a well-crafted succession plan aims to benefit everybody— the departing owner, their family, the business and the successor.
There are exceptions, like a division where one successor can focus on sales, and the other on product development.
But businesses are generally much harder to manage with multiple decision makers.
A buy-sell agreement ensures they’re given fair compensation, and allows the remaining co-owner(s) to maintain control of the business.
A buy-sell agreement with a co-owner requires a lot cash kept on-hand.