Concentrated Businessman Is Working on Laptop Computer


The Elder & Disability Law Firm, APC May 9, 2022

If you own a business, co-own a business, or are a partner in a business, you certainly want to prepare for the day when you decide to retire, or for an unforeseen event that could leave ownership and operation of the enterprise in limbo.

In other words, just as you would include real property and other assets in your estate planning – how to provide for your loved ones when you’re gone – you should also consider what becomes of the business you’re involved in.

If you’re a sole proprietor, you may simply wish to leave the business to a family member, but that assumes the family member wants to run it or even has the experience or knowledge to do so. What, then, do you do if the family isn’t ready to step up? Sell to an employee or an outside party? If you’re a co-owner or partner in the business, will the other owners have the resources to buy you out if you decide to retire or if you suddenly pass on?

Though running a family business can be exhilarating and enriching in both personal and financial terms, you need to put careful consideration into the day when it becomes time for you to move on, or when time and events force you or your heirs to move on before anyone is prepared.

For all your estate planning needs, including business succession planning, in or around Redlands, California, contact The Elder & Disability Law Firm, APC. Attorneys Wang and Oei also proudly serve clients in neighboring communities such as Riverside, Palm Springs, and Rancho Cucamonga.


If you’re the owner-operator of a business, the last thing you want is for the unforeseen to happen and disarray to descend upon you and your family’s source of livelihood. With no succession plan in place, you could face a shotgun sale, which could result in everyone being shortchanged. 

That being said, valid reasons for succession planning include:

  • Transferring ownership when the time comes

  • Maintaining your lifestyle in retirement

  • Providing for your heirs financially

  • Preparing the business for the unexpected or unforeseen


If you’re the sole owner of a business, perhaps the logical route to retirement is simply to sell out before you move on. Many sole proprietors, however, prefer that the business remains in the family. In that case, choosing and grooming a successor takes center stage. To ensure that the business passes to the family, you can name your family as beneficiaries of your estate, including your business, through a will or living trust.

If a family member is involved in operating the business and has the skills and knowledge to continue after you retire, then you can simply transfer the assets before retiring. But if there are several family members with an interest in the business, choosing one as your successor over the others may lead to endless in-fighting and bickering that could jeopardize the survival of the enterprise.

On the other end of the spectrum, if no family member wishes to run the business, you may have to sell to a key employee or to an outside buyer. The problem with key employees is that they often don’t have the money to purchase your business. You will probably have to arrange some kind of financing – a small down payment and then monthly or quarterly payments,

If there’s no key employee with the desire or resources to purchase the business, that leaves the option of an outside buyer, and in that case, you will need to have the business valued by a certified public accountant (CPA) to arrive at a fair selling price.


If there is more than one owner, or if the business has been established as a partnership, the usual path to succession involves buy-sell agreements. Buy-sell terms should be clearly spelled out in any operating or partnership agreement governing the business.

Buy-sell agreements often rely on purchasing life insurance on all the partners. There are two applications of life insurance in a buy-sell agreement. One is called a cross-purchase agreement, the other an entity-purchase agreement.

A cross-purchase agreement requires each partner to buy a life insurance policy on the other partners. Then, if one partner dies, the proceeds from the insurance policies can be used to buy out the heirs. An entity-purchase agreement involves the business itself purchasing policies on each partner, with proceeds used to buy out the deceased partner’s equity.

Provisions also have to be made for retirement. If one co-owner or partner decides to retire, there need to be procedures spelled out on selling that person’s share to an outside buyer or family member, or for the other owners to buy out that person’s share.


When forming your business, you need to take into consideration all possibilities, including the retirement or death of the owner or of a co-owner or partner. Consulting with experienced estate planning attorneys is essential to make sure your heirs aren’t thrust into turmoil should something unexpected happen to you, or even if personal circumstances dictate that it’s time to retire.

If you’re in or around Redlands, California, contact The Elder & Disability Law Firm, APC for all your estate planning needs, including business succession planning.