Avoid the “Succession” Shock with Proper Estate and Business Planning

PUBLISHED ON: April 26, 2023

Download PDF

SPOILER ALERT: This article contains key plot points of Succession’s 3rd episode of its 4th and final season.

“Are we gonna be okay?” — Roman Roy

The loss of a loved one often occurs when we least expect it. Unlike most portrayals on TV and in film, death comes not at the pinnacle of a conflict nor at a perfect moment of poignance. Instead, as with the death of Logan Roy, the patriarch of the fictional Roy family in Succession, it can come at any time and at any place.

Will The aftershocks of the death of a family member are compounded when the deceased is not only mourned by his immediate family, but also sends a business that they run into immediate chaos. The death of Logan Roy showcased how these interests (familial and business) can be both competing and intertwined simultaneously. Each member of the Roy family, their friends and family and the executives who had helped run their business will now have to navigate how to manage the fallout of this loss and the consequences to the family and the business.

These issues are played up for drama on Succession, but the scenario is a common and important issue for all family business owners to consider. A failure to plan for either estate or business succession can have significant repercussions for all.

The business assets of a business owner may be the most valuable assets they own, and determining who inherits them is a vital first consideration. First, who are the potential heirs and what are their current relationships with the business? Second, how will the deceased owner’s business interests pass? Corporate organizational documents and buysell agreements may restrict to whom and in what manner they can pass. Presuming the business owner retains an unrestricted right to transfer the interest, the issues may be clear. Conversely, if the owner is limited in what he can transfer (ownership in the company, management rights or simply the value of the interests at his or her date of death), those limits can cause friction amongst the family and between the family and the company.

Finally, the tax implications of transferring the business also need to be considered, especially if the owner’s interests are close to or exceed applicable federal or state estate tax exemptions. If the owner’s estate is only entitled to the value of the interests, an accelerated liquidation of those interests may or may not be available. A lack of liquidity that is known in advance can allow the owner to set aside funds for the estate’s tax liability with other assets or by purchasing life insurance to cover the potential taxes.

The fate of any family member who is not included in the inheritance of a business must also be considered. Excluding a spouse or a child from the business inheritance may create animosity amongst the excluded parties and may potentially lead to litigation. A properly drafted estate plan can provide alternate bequests to these parties and/or provide negative consequences to any challenger of a will or trust if they choose to initiate a legal action.

From the business side, the family aspect may not be the only issue at play. Non-family member owners or partners may be involved, and they will likely have their own thoughts on continuing the business without their original partner or co-owner. The formation documents of the business may include specific language with regard to what happens when an owner dies and the process by which a junior family member may succeed to their ownership interests. A properly drafted shareholders, LLC or partnership agreement can cover these issues explicitly. If, like Logan Roy, the deceased was the primary manager of the business, his or her heirs may expect that they will become a part of the management team after the death of their parent. There is also a question about other key employees who may not be equity owners, but whose expertise and loyalty to the company may be needed for the company to continue past the loss of the owner. “Key man” agreements for these employees can curtail the potential concerns that can accompany this sudden change.

A sale of the company may be needed or desired if the owner’s family is unwilling or unable to shoulder the responsibilities once the original owner has died. A buy-sell agreement between existing owners can provide both the framework of a sale as well as possible funding mechanisms that will allow the family to be paid for the owners’ equity in the business without negatively affecting the ongoing business operations. A sale to a third party may also be a desired or necessary option in the event that the deceased owner has no prospective successors to continue the business after the owner’s death. The owner’s estate planning and business planning must be coordinated to ensure that all sides maximize the end result of any potential sale or buyout.

The impact of Logan Roy’s death is significantly larger than that of many family business owners, but the importance of getting the planning right before the unexpected happens remains the same.

The impact of Logan Roy’s death is significantly larger than that of many family business owners, but the importance of getting the planning right before the unexpected happens remains the same. Proper estate and business planning can make the tragic loss of a loved one or business associate less difficult. And while nothing can make things the same after a death, proper planning can answer Roman’s panicked question with an affirmative “Yes.”

 

MICHAEL C. LEVY, a shareholder in Anderson Kill’s New York office, has focused his practice on estate planning, trust and estate administration and Surrogate’s Court practice for 20 years, including 11 years as a solo practitioner. His practice encompasses basic and complex estate planning, business succession planning, family charitable and philanthropic planning, estate and trust administration and Surrogate’s Court practice/estate litigation.

mclevy@andersonkill.com

(212) 278-1033