What Do You Need: Succession Planning or Estate Planning?

Estate Planning and Succession Planning – two terms that are often confused as one, and for good reason. Both deal with the same thing in essence: the smooth legal transfer of your assets and hard-earned wealth, goodwill, and reputation to their loved ones. The objective of both is also the same: to ensure your loved ones are well looked after and can live a comfortable life even in your absence.

However, despite these matching objectives, estate planning and succession planning are distinct from one another. Succession planning is an integral part of proper estate planning.

What exactly are the differences between the two? And which one do you need to plan for a secure future for your loved ones? We’re here to answer all your questions.

Estate Planning Vs. Succession Planning: What’s the Difference?

Succession planning forms a part of your estate planning. The main differences between the two are:

1. Personal vs. Professional: While estate planning encompasses the distribution of all your assets, wealth, and property (including personal assets, family heirlooms, jewelry, and more), succession planning focuses on planning who will take over the reins of your carefully built business.
2. Individual choice vs. Collective Decision: In estate planning, you are the sole decision-maker about how you would like to distribute your wealth and assets. Yes, you do need a lawyer, executor, and trustee to help you plan how to distribute wealth, but the ultimate choice of what to bequeath, which asset to whom, is solely yours. When it comes to handing over a business, many individuals, including your board of directors, senior management, family members, lawyers, and financial experts, must be consulted to ensure a smooth transfer.   
3. After Death vs. Before Death: Unlike estate planning, which usually comes into effect after your demise or in case of a sudden incapacitation, planning the succession of your business can go into effect while you are alive and still capable of handling business matters yourself.

Then why plan for succession at all, right?

For two reasons.

Firstly, having a successor ready and trained is very handy in case of a sudden accident or unforeseen event that could render you unable to handle business effectively.

Secondly, the concept of early retirement and living life to the fullest in later years has become increasingly popular. However, to enjoy a carefree retirement, you first need to ensure your business is in safe and strong hands. And that is precisely what succession planning helps you do.

Do You Need Estate Planning or Succession Planning?

The answer to this question depends on three things: the nature of your estate, the purpose of your plan, and its timing.

You need Estate Planning when:

(a) Distribution of Wealth: If you have accumulated personal wealth over the years in the form of money, tangible assets, or real estate, and would like to leave specific bequests to specific beneficiaries, typically family and friends, you need estate planning. You can also arrange for a portion of your wealth to be donated to charity in your will.

(b)   Dividend-Paying Shares: If you have investments in shares and receive income from their dividends, you can transfer them to your chosen beneficiaries through estate planning. This will help save them a significant amount of paperwork and potential tax problems later.

(c)   Child Care: You can entrust the care of minor children, if any, to trustworthy guardians of your choice so that they receive the same kind of love and attention as they would have from you. Additionally, you can place your wealth in a trust with carefully selected trustees and executors who can manage these finances until your children come of age.

(d)   Timing: All these provisions will come into effect after your demise or in case of any incapacitation.

You need Succession Planning when:

(a)   Passing on Business Leadership Role: If your estate includes an established and running business, you will have to include a legally recognized succession plan apart from your personal estate plan. The objective of a succession plan is to facilitate a smooth transfer of leadership powers to someone else, be it a family member, board member, or employee. As mentioned earlier, this must be done in cooperation with your business associates and requires sharp decision-making. You can also opt to continue holding certain rights, such as the veto power in important business-related decisions.

(b)   Business Investments: The transfer of business shares (as part of your shareholding in a business), where the objective is not earning dividends but earning a place in the company’s management structure and voting rights, can only be done through succession planning.

(c) Timing: These decisions and processes can be implemented at any time during your business career. The sooner you start your succession planning, the more time you’ll have to judiciously identify, train, and guide your protégé or business successor.

Estate and succession planning are like two sides of the same coin. Both are equally important to avoid fights and turmoil in the future. You have held your personal and professional family together for a long time. You must plan for them well in advance. After all, it is only through them that you can keep your dreams and legacy alive for decades to come.

Contact KSSP Partners LLP in Markham for Expert Estate and Succession Planning Advice 

A skilled tax advisor can help you plan your estate transfer in the most tax-efficient manner. At KSSP Partners LLP, our tax experts can provide services to support your tax and estate planning function, whether you need partial or complete support. Additionally, we can offer recommendations on structuring your wealth to best suit your business needs. To learn more about how KSSP Partners LLP can provide you with the estate and succession planning expertise, contact us online or by telephone at 289-554-5997.