Raleigh Succession Planning Attorney

Common Succession Planning Strategies

By using specific legal and financial tools, business owners can maintain control during their lifetime while gradually or immediately transferring interests in a tax-efficient and orderly manner. You can work closely with our attorney at NC Wills & Trusts to implement strategies tailored to your circumstances, objectives, and preferences.

Here are some common succession planning strategies we can help you consider:

• Buy-sell agreements. This is a cornerstone of succession planning for businesses with multiple owners. A buy-sell agreement is a legally binding contract among co-owners that dictates what happens to a partner's or shareholder's interest in the business upon certain "triggering events," such as death, disability, retirement, or divorce. It establishes who can buy the departing owner's share, the price or a valuation formula for that share, and the terms of the sale. This helps to create a guaranteed market for the departing owner's interest, provides liquidity for their estate, and prevents unwanted outsiders from acquiring an ownership stake, thus maintaining business continuity and stability. These agreements are often funded by life insurance policies, where the proceeds provide the necessary cash for the buyout.
• Trusts. Trusts are highly versatile tools in succession planning. Placing business interests in an irrevocable trust can remove those assets from the owner's taxable estate, potentially reducing future federal estate taxes. For example, a business owner might transfer non-voting shares of their company to an irrevocable trust for the benefit of future generations while retaining voting control through other shares. A grantor retained annuity trust (GRAT) can be particularly useful for transferring appreciating business interests. The owner (known as the grantor or trustor) transfers shares to a GRAT for a set term, receiving an annuity payment back. If the business shares appreciate faster than the IRS's assumed rate, the excess value passes to the GRAT’s beneficiaries free of gift or estate tax. Trusts can also establish clear rules for how the business is managed and eventually distributed, helping to avoid family conflicts and ensuring the business continues to operate even if heirs are not immediately ready to take over.
• Gradual transfers of ownership. Instead of an abrupt transfer, owners can gradually transfer ownership over time. This can be accomplished through gifting or installment sales. The owner can gift portions of their business interest to chosen successors annually, taking advantage of the annual gift tax exclusion ($19,000 per recipient in 2025) to transfer significant value over time without incurring gift taxes or using their lifetime exemption. The owner can also sell business interests to successors (often family members or key employees) over a period, receiving payments over time. This provides the retiring owner with a steady income stream and can spread out capital gains taxes. The selling price might be set at fair market value or potentially at a discounted value for transfers to family members if properly structured and justified.
• Recapitalization through the creation of voting and non-voting stock. This strategy involves restructuring the company's equity to facilitate a transfer of economic value to successors while allowing the current owner to retain control. For example, a business can create two classes of stock: voting and non-voting. The owner can gift or sell the non-voting shares to future successors (reducing their taxable estate) while retaining the voting shares, thereby maintaining control over the business's operations and strategic direction until they are ready to fully step away. This allows for a gradual transfer of ownership interest without immediately relinquishing management control.