FCB #027: Three Must-Have Plans: Trust & Estate Plan, Exit & Succession Plan, and Financial & Retirement Plan

If you are a business owner, you should prioritize the development of three essential plans: a Trust & Estate Plan, an Exit & Succession Plan, and a Financial & Retirement Plan.

I am amazed at how many of the small business owners I work with do not have one, let alone all three of these critical planning tools.

These plans are not just prudent measures; they are strategic tools for securing the long-term success of both your business and your family affairs.

A Trust & Estate Plan ensures a seamless transition of assets and business interests to heirs or designated beneficiaries, safeguarding the fruits of your years of hard work.

An Exit & Succession Plan is critical for maintaining business continuity and maximizing the value of your company when it's time to step down.

Lastly, a Financial & Retirement Plan offers peace of mind by providing a clear roadmap to financial security beyond the business, ensuring that you, as the business owner, can enjoy the fruits of your labor in retirement.

By proactively working on these three plans, you as the business owner can navigate transitions, protect your legacy, and secure your financial future, creating a solid foundation for your entrepreneurial journey.

Trust & Estate Plan

A trust and estate plan is a comprehensive legal and financial strategy that outlines how your assets should be managed, protected, and distributed during your lifetime and after your passing.

Here are its main components:

1. Will: A legally binding document that specifies how your assets should be distributed upon your death, including naming an executor to carry out your wishes.
2. Trust: A legal arrangement that allows you to transfer assets to a trustee who manages and distributes them according to your instructions, often with benefits like avoiding probate and providing for specific needs.
3. Beneficiary Designations: Naming beneficiaries for assets like life insurance policies, retirement accounts, and investment accounts to ensure they pass directly to intended recipients.
4. Power of Attorney: Designating someone to make financial decisions on your behalf if you become incapacitated.
5. Healthcare Proxy: Appointing a trusted individual to make medical decisions for you if you're unable to do so.
6. Living Will: Outlining your preferences for medical treatment in life-threatening situations.
7. Guardianship Provisions: Appointing a guardian for minor children to ensure their care and upbringing in the event of your death.
8. Letter of Instruction: A non-legally binding document that provides guidance to your executor or trustee on specific wishes and details not covered in the will or trust.
9. Tax Planning: Strategies to minimize estate taxes, including gifts, marital deductions, and charitable giving.
10. Business Succession Plan: If you own a business, a plan for transferring or selling the business when you retire or pass away.
11. Asset Inventory: A comprehensive list of all your assets, debts, and account information to facilitate the settlement of your estate.
12. Funeral and Burial Instructions: Your preferences for end-of-life arrangements and funeral services.
13. Digital Estate Plan: Instructions for managing your online accounts and digital assets, including passwords and access details.
14. Trustee and Executor Designations: Naming individuals or institutions responsible for managing and distributing assets as outlined in your plan.
15. Contingency Plans: Provisions for unforeseen circumstances and changes in beneficiaries, trustees, or other key parties.

A trust and estate plan should be customized to fit your unique financial situation, family dynamics, and personal goals, and it should be periodically reviewed and updated to reflect changes in your life or financial circumstances.

Consulting with an experienced estate planning attorney is essential to create a plan that aligns with your wishes and legal requirements.

We use Jonathan D. Primuth, Partner with Lagerlof, LLP in Pasadena, California ([email protected]; 626-793-9400) who is an expert at Trust & Estate Planning.

Exit & Succession Planning

Exit and Succession Planning is a strategic process that helps you as the business owner prepare for the eventual transfer of your business, whether through sale, transition to family members, or other means.

Here are its main components:

1. Exit Strategy: Developing a clear plan for how and when you intend to exit the business, whether through a sale, merger, or other means.
2. Succession Planning: Identifying and preparing successors who can take over key roles and responsibilities within the company.
3. Business Valuation: Determining the fair market value of the business to facilitate a sale or transition.
4. Legal Structure: Assessing the most suitable legal structure for the transition, which may involve changes to the company's organization.
5. Financial Planning: Ensuring the business is financially stable and attractive to potential buyers or successors.
6. Tax Planning: Developing strategies to minimize taxes associated with the sale or transition, including capital gains and estate taxes.
7. Documentation: Preparing all necessary legal documents, contracts, and agreements for the transition, such as a buy-sell agreement or partnership agreement.
8. Training and Development: Providing training and mentorship to successors to ensure a smooth transition of leadership and management.
9. Customer and Employee Transition: Developing plans for retaining customers and employees during and after the transition.
10. Risk Assessment: Identifying potential risks and challenges that may arise during the transition and creating contingency plans.
11. Timetable: Establishing a timeline for the exit and succession process to ensure a well-organized transition.
12. Communication Plan: Communicating the transition plan to key stakeholders, including employees, customers, suppliers, and investors.
13. Legal and Regulatory Compliance: Ensuring that the transition complies with all relevant laws and regulations, including industry-specific requirements.
14. Financial Security: Ensuring that your financial needs and retirement plans are taken care of after your exit from the business.
15. Post-Transition Involvement: Determining the extent of your involvement in the business after the transition and planning for a smooth handover.

Exit and Succession Planning is crucial for you as the business owner to protect the value of your business, secure your financial future, and ensure a smooth transition for the business you've worked (or are working) so hard to build.

It should be a dynamic and ongoing process that adapts to changing circumstances and your goals.

Some good books on the subject of Exit & Succession Planning are:

• Built To Sell, by John Warrillow
• Cash Out Move On, by John H. Brown
• Exit Planning, by John H. Brown
• Exit Rich, by Seiler Tucker & Lechter
• Exiting Your Business, by John M. Leonetti
• Finish Big, by Bo Burlingham
• The Exit Strategy Handbook, by B2B CFO
• Walking to Destiny, by Christopher M. Snider

Financial & Retirement Planning

Financial and Retirement Planning is a process that helps you and your family achieve your financial goals and secure your financial future, particularly for retirement.

Here are its main components:

1. Financial Goals Assessment: Evaluating short-term and long-term financial objectives, such as saving for retirement, buying a home, or funding education.
2. Budgeting and Cash Flow Management: Creating a budget to track income and expenses, ensuring that money is managed effectively.
3. Emergency Fund: Setting aside savings to cover unexpected expenses or financial emergencies.
4. Debt Management: Developing strategies to pay down and manage debt effectively, including mortgages, credit cards, and loans.
5. Investment Strategy: Creating an investment portfolio tailored to individual risk tolerance, financial goals, and time horizon.
6. Retirement Savings: Planning and contributing to retirement accounts, such as 401(k)s, IRAs, or other retirement plans, to build a nest egg for retirement.
7. Tax Planning: Implementing strategies to minimize tax liabilities and maximize after-tax returns on investments.
8. Insurance Coverage: Reviewing and maintaining adequate insurance coverage for health, life, disability, and property to protect against unexpected events.
9. Estate Planning: Ensuring that assets are transferred efficiently and according to your wishes upon death, potentially including wills, trusts, and beneficiary designations.
10. Social Security and Pension Maximization: Determining the best strategies for claiming Social Security benefits and optimizing pension benefits if applicable.
11. Risk Management: Evaluating and managing investment risk through diversification and asset allocation.
12. Long-Term Care Planning: Preparing for potential long-term care needs, including considering long-term care insurance or self-funding options.
13. Legacy and Charitable Giving: Planning for leaving a legacy or making charitable contributions as part of your financial strategy.
14. Retirement Income Planning: Developing a plan for withdrawing retirement savings in a tax-efficient manner to ensure financial security throughout retirement.
15. Regular Review and Adjustment: Continuously monitoring and adjusting the financial plan as circumstances, goals, and market conditions change.

Financial and Retirement Planning is essential for you and your family to achieve financial security, meet your financial objectives, and enjoy a comfortable retirement.

It provides a roadmap for making informed financial decisions throughout your life and helps you adapt to changing circumstances to stay on track toward your goals.

We use Joel Almquist ([email protected]; 626-755-2200) and Michael Cadis ([email protected]) who are experts at Financial & Retirement Planning and Wealth Management.

Conclusion

Some of the best decisions I’ve made in my professional and entrepreneurial careers have been to:

1.     Get a professional Financial & Retirement Plan put together,

2.     Get a professional Trust & Estate Plan put together, and

3.     Seek out professional help for Exit & Succession Planning.

I credit much of my financial and lifestyle success with taking action on these three critical planning items.

Please do not wait to start these planning processes. 

Start today and when the time comes to exit and retire, you will be very glad you did!