How to Avoid an Epic Fail of a Business Succession Plan

For the business owner, the success of their business impacts their daily lives. The success of their succession plans (say that five times fast!) is inexorably linked to having a well-conceived and properly prepared plan, that is coordinated with their estate plan. Both plans need to be built to withstand challenges, which are outlined in the article “Five events that can ruin a succession plan” from Kenosha News.

Let’s take a closer look at the “Five D’s of Succession Planning.”

Death. Believe it or not, businesses can succeed in the face of their owner’s death. However, this is only if all of the right steps are taken, and the right people are prepared to lead. If the business owner has named a successor, created a plan and purchased business interruption insurance and/or life insurance, the business has a shot at continuing. However, in most cases, the estate plan fails to address leadership succession, liquidity and leadership.

Disability or Disease. Sometimes disability and disease can be worse than death to a business. If the right advisors and plan is in place for death, the business may survive. However, a sick or disabled business owner, especially if they have been the only ones making key decisions, may be less likely to survive. If a disabled business owner has lost some cognitive function and is not able to make the best decisions on behalf of their business and their employees, the business may lose value.

Divorce. Nothing destroys a business, like extended litigation. This is often what happens when divorce occurs. A smart couple will work together, despite their personal acrimony to protect the value of the business and their joint assets. Tearing each other apart harms children and businesses. The best approach is to have a plan created for what would happen to the business, if the couple divorced. Think of it as a prenup for the business.

Drama. Our tendencies toward drama impact businesses. If there is a succession plan and those plans are communicated to the leaders, who make clear to middle management and employees that there are plans in place to continue the business, the company can remain stable. In their absence, rumors will impact everyone, from key employees to management, to vendors. Nothing hurts a business more when other companies in the same business are gossiping about its impending demise. The shining stars of the company will flee for more stable opportunities. Vendors may refuse credit. It spirals downward.

Drive. Most business owners are self-driven individuals who love to see their inspiration, ideas and energy grow into successful businesses. When it’s time to get into the weeds of details, or manage people, they’re not that interested. Or, they dig into the details and the company depends upon one person to succeed—rarely a good idea. When that drive is lost and there’s no plan to hand things over to the next generation or key employees, the business can slump, lose value and eventually, close its doors.

A strong succession plan does more than protect the owner. It protects the owner’s family, employees and their families and communities. An estate planning attorney who routinely works with business owners will be familiar with the strategies available to ensure that all the pieces are in place to continue the business and protect the family.

Reference: Kenosha News (August 25, 2019) “Five events that can ruin a succession plan”

What Changes Will Be Made to Social Security This Year?

While Social Security now delivers benefit checks to more than 63 million people every month, the program is primarily designed to provide a financial foundation for our nation’s retired workers. Nearly 45 million retired workers (70% of all beneficiaries) receive a benefit check monthly, with more than 60% of these seniors expecting their payout to make up at least half of their income.

Motley Fool’s recent article, “5 Social Security Changes in 2020 That Could Affect Your Take-Home Income” explains that with the relative importance of Social Security, it should come as no shock that the second week of October holds considerable importance to these tens of millions of Americans. That’s because it’s when the Social Security Administration (SSA) announces changes to the program for the upcoming year. Any changes could directly affect what beneficiaries are paid on a monthly basis. These changes can also affect non-retirees who aren’t getting a Social Security benefit Let’s look at some of these changes.

  1. COLA. The most important figure in the October announcement from the Social Security Administration is the cost-of-living adjustment (COLA). Social Security’s COLA is measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The average monthly CPI-W reading from the third quarter of the current year (July through September) is compared to the average monthly CPI-W reading from the third quarter of the previous year. If the average figure has risen from the previous year, then beneficiaries receive a “raise” that’s commensurate with the percentage increase year over year, rounded to the nearest 0.1%.
  2. Withholding thresholds. Early claimants who haven’t hit their full retirement age but are currently (or expected to begin) taking benefits, will be subject to the retirement earnings test. This test allows early filers to earn up to a certain amount of money, before the SSA is allowed to withhold a portion, or all, of their benefit. For those who won’t reach their full retirement age in 2019, $1 in benefits can be withheld for every $2 in earnings above $17,640 ($1,470 a month). For those who’ll reach their full retirement age this year but have yet to do so, are allowed to earn $46,920 before the SSA begins withholding $1 in benefits for every $3 in earnings above the limit. Note that these withheld benefits aren’t lost forever, because you get them back in the form of a higher monthly payout when you reach your full retirement age.
  3. Maximum monthly payout. If you’re currently claiming a retired worker benefit and have made a good deal of money on an annual basis over your working career, there’s a chance that you’ll be able to net more in monthly payouts in 2020. There’s a cap on the maximum monthly payout at full retirement age. In 2019, no individual at their full retirement age can take home more than $2,861 per month, even if they made millions of dollars each year throughout their working career.
  4. Disability income thresholds. Even though 7 of 10 program recipients are retired workers, about 10 million people each month also get a check from Social Security Disability Insurance (SSDI). Approximately 8½ million are disabled workers, and the rest are spouses or children of these disabled workers. If the average CPI-W reading does increase on a year-over-year basis from the previous year (which appears likely), these SSDI income thresholds for the disabled and legally blind should go up a little in 2020.
  5. A warning to the wealthy. Lastly, Social Security’s changes for 2020 won’t just impact those receiving a benefit. Wealthy workers can also anticipate paying more into the program, provided that inflation rises on a year-over-year basis, as measured by the CPI-W.

Reference: Motley Fool (July 28, 2019) “5 Social Security Changes in 2020 That Could Affect Your Take-Home Income”

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