Business Succession Planning: Frequently Asked Questions

Q1. What is business succession planning?

Business succession planning is the legal and financial process of deciding what happens to your business when you retire, become incapacitated, or pass away. A well-drafted plan identifies who takes over ownership and management, establishes how the transition will be funded, and helps protect the interests of family members, partners, employees, and clients.

Without a plan, those decisions may be left to chance, creditors, or the courts.

Q2. Why do I need a succession plan if I am not planning to retire soon?

Many business owners wait longer than they should. Unexpected illness, disability, death, or a sudden acquisition offer can force a transition at any time. A succession plan prepared years in advance is often far more effective than one drafted under pressure.

Early planning also gives you time to reduce tax exposure, groom a successor, and structure the transfer in a way that may maximize the value you receive.

Q3. Who should be involved in creating a succession plan?

A thorough succession plan typically involves:

• A business succession attorney to structure the legal documents and ownership transfer
• A certified public accountant or tax advisor to address income, gift, and estate tax implications
• A certified business valuator to help establish fair market value
• A financial planner or insurance professional to evaluate funding mechanisms
• Key family members or business partners whose interests will be affected

At Sayer, Regan & Thayer, our multidisciplinary team coordinates with your existing advisors to help make sure the elements of the plan work together.

Q4. What are my options for transferring the business?

There are several common transfer structures, and the right one depends on your goals, your industry, and who you want to take over:

• Transfer to a family member (family succession)
• Sale to a key employee or management team (management buyout)
• Sale to an outside buyer (third-party sale)
• Employee Stock Ownership Plan (ESOP)
• Merger or acquisition
• Liquidation of assets

Each option carries different tax consequences, financing requirements, and legal considerations. Our attorneys will walk you through the trade-offs before you commit to any path.

Q5. How is my business valued?

Business valuation is typically done by a credentialed valuation professional using one or more standard methods: the income approach (based on earning capacity), the market approach (based on comparable sales), or the asset approach (based on the value of tangible and intangible assets).

The valuation establishes a baseline for negotiations, informs gift and estate tax planning, and helps you set realistic expectations for what you may receive in a sale. We work with certified valuation experts and can help you select the right professional for your situation.

Q6. How can I minimize taxes when transferring my business?

Tax planning is one of the more valuable parts of succession planning. Strategies may include:

• Gifting ownership interests over time to take advantage of annual gift tax exclusions
• Using a grantor retained annuity trust (GRAT) or other irrevocable trust structures
• Structuring an installment sale to spread taxable gain across multiple years
• Establishing a buy-sell agreement funded with life insurance to help address estate tax complications
• Taking advantage of Section 1031 exchanges or qualified opportunity zone investments where applicable

The right approach depends on the value of your business, your retirement income needs, and your estate planning goals. Because states differ in how they tax capital gains, business income, and estate transfers, the most effective combination of strategies also depends on where your business is organized and where its owners live. Our team collaborates with your CPA and financial advisors to develop a coordinated tax strategy.

Q7. What is a buy-sell agreement, and do I need one?

A buy-sell agreement is a legally binding contract between business co-owners that governs what happens to an ownership interest if a triggering event occurs, such as death, disability, divorce, retirement, or bankruptcy.

It can protect all owners by establishing a predetermined price or valuation formula, funding mechanism, and timeline for any transfer. Without one, a co-owner’s heirs or a divorcing spouse could potentially become your new business partner.

If you have a business partner and do not currently have a buy-sell agreement, this is generally worth prioritizing early.

Q8. How does business succession planning connect to my personal estate plan?

Your business is often your largest asset. A succession plan that is not coordinated with your will, trust, and beneficiary designations can create conflicts.

For example, if your will leaves your estate equally to your children but your succession plan transfers the business to only one child, you may need to equalize distributions through life insurance, other assets, or a carefully drafted trust.

At Sayer, Regan & Thayer, we work to ensure that your business succession plan and your personal estate plan are built to work together. Mr. Sayer’s practice encompasses both estate planning and business law, which can mean fewer handoffs and fewer gaps in your overall strategy.

Q9. What industries do you serve?

Our succession planning team has worked with business owners across a range of industries, including:

• Manufacturing and industrial businesses
• Professional services firms 
• Retail and hospitality businesses
• Technology companies
• Family-owned businesses
• Maritime and nautical enterprises

Regardless of industry or company size, we develop a succession plan tailored to your specific business structure and personal goals.

Q10. When should I start the succession planning process?

The best time to start is often sooner than owners expect. Many attorneys recommend beginning the planning process five to ten years before an intended retirement date, though the right timeline depends on your industry, business complexity, and personal goals. That window can give you time to:

• Identify and develop a successor
• Restructure ownership in a tax-efficient way over multiple years
• Update your business’s valuation as it grows
• Fund a buy-sell agreement through life insurance or other mechanisms
• Review and revise the plan as circumstances change

If you are within two to three years of a planned transition, or if a health issue or acquisition offer has made the timeline urgent, we can still work to develop an effective plan. We may simply need to prioritize certain steps.

Q11. How long does it take to create a succession plan?

A basic succession plan can often be completed in four to eight weeks. A more complex plan involving multiple owners, significant tax planning, trust structures, or coordination with estate documents may take three to six months.

The initial consultation is typically one to two hours. After that, we gather information about your business structure, assets, goals, and family situation before drafting any documents.

Q12. How does succession planning work for professional services firms?

Professional services firms, such as law firms, accounting practices, medical groups, and consulting firms, face succession challenges that are often distinct from those of product-based businesses. The value of the firm is tied primarily to client relationships, referral networks, and the reputations of individual practitioners, all of which can be difficult to transfer contractually.

A well-structured succession plan for a professional services firm typically addresses:

• Client transition protocols and how relationships will be handed off to successors
• Partnership buy-in and buyout mechanisms for incoming and departing partners
• Non-solicitation and non-compete provisions appropriate under applicable professional rules
• Equity valuation methods that account for goodwill and book of business
• Phased retirement arrangements that allow senior practitioners to step back gradually

Because professional services firms are often subject to licensing and ownership restrictions, it is important to work with an attorney who understands both the business law and the regulatory context for your profession.

Q13. What is the difference between internal succession and selling to an outside buyer?

Internal succession means transferring ownership to someone already inside the business, such as a family member, a key employee, or a partner group. An external sale means selling to a third party who has no prior connection to the business.

Each path has trade-offs:

• Internal succession often preserves company culture and client relationships, but financing the buyout can be complex, and not every insider has the capital or management capability to take over
• An external sale can often generate a higher purchase price and a cleaner exit, though outcomes vary by industry and market conditions, and the process requires extensive due diligence, representations and warranties, and careful handling of employee and client transitions
• A management buyout (MBO) sits between the two: a team of existing managers acquires the business, often using seller financing, outside investors, or an SBA loan

Many owners do not commit to one path until they have gone through a valuation and explored the realistic financing options for each. Our attorneys can help you evaluate all three before you make any decisions.

Q14. Can succession planning address concerns about immigrant families or cross-border ownership?

Yes. Business owners with cross-border family situations, foreign-born heirs, or assets in multiple countries often face additional layers of complexity in succession planning. Key issues can include:

• U.S. estate and gift tax rules that apply differently to non-citizen spouses and foreign beneficiaries
• Treaty considerations between the United States and other countries that may affect how assets are taxed at death
• Visa and immigration status implications when a business is transferred to a non-citizen heir
• Foreign account reporting requirements (FBAR, FATCA) if the business has international assets

These issues generally require close coordination between your succession attorney and a tax advisor with international expertise. Our team can help identify the right professionals for your situation and work to ensure the succession plan accounts for cross-border considerations from the start.

Q15. What role does life insurance play in a succession plan?

Life insurance is one of the more common funding mechanisms in succession planning, particularly for buy-sell agreements. It is typically used in a few ways:

• Cross-purchase agreements: each business owner buys a policy on the other owners, so that if one dies, the survivor can use the insurance proceeds to buy out the deceased owner’s interest
• Entity-purchase (redemption) agreements: the business itself owns policies on each owner and uses the proceeds to redeem the deceased owner’s shares
• Key person insurance: the business insures a critical employee or owner whose death or disability would materially harm operations, using the proceeds to fund a transition period

Life insurance proceeds are generally income-tax-free to the recipient, which can make them an efficient funding tool. However, the policy ownership structure matters significantly for estate tax purposes. We work with your insurance and financial advisors to help align the funding strategy with your plan’s legal structure.

Q16. How do I get started with Sayer, Regan & Thayer?

Contact our office to schedule a confidential consultation with Richard N. Sayer or another member of our succession planning team. We serve clients throughout Rhode Island, Massachusetts, and Connecticut from our offices in Newport and Wakefield.

This article is intended for informational purposes only and does not constitute legal advice. Succession planning involves complex legal and tax considerations that vary based on individual circumstances. Contact Sayer, Regan & Thayer LLP to discuss your specific situation with a qualified attorney.