Seven Steps to Strengthening Your Business Succession Plan

Seven Steps to Strengthening Your Business Succession Plan

To further expand on my blog post Planning for Succession in your Business dated June 26, 2013, I have outlined the seven steps to a successful business succession plan.


Understanding family issues plays a key role in the implementation of a business succession plan.  The business owner must decide who, if any, of the family members will be involved in and potentially become leaders in the business and to what extent such family members should be rewarded differently than other family members because of their contribution of “sweat” equity to the business.  It is important to recognize that children who sit on the sidelines will often develop distrust of their siblings working for the business and will desire to be “cashed out” of the business on an equal basis to obtain their fair share of their parents’ estates.  If not properly planned for, that desire may place an unreasonable burden on the business. The business owner must also decide the extent of participation of his or her spouse, often of a second marriage, in the business, both financially and as part of management.  With an understanding of these planning issues, the owner can proceed with creating the strategic business succession plan.


The foremost planning area involves the structure of the business itself.  The business should be structured to facilitate succession planning and to minimize liquidity concerns and potential income and transfer taxes.   While an owner may believe that an ongoing business is precluded from changing its structure and ownership due to tax consequences or business considerations, this is not always the case.  A business will consider the following vehicles in formulating its preferred structure and ownership for purposes of its strategic business succession plan:

  1. Is the business structured as a limited liability company, limited partnership, S corporation or other favorable entity and how can the business be restructured, if necessary, without significant adverse tax consequences?
  2. Do the ownership interests consist of voting interests and nonvoting interests for purposes of control?  Even an S corporation can have both types of interests.  Is the business owner providing family members that are not active in the business with nonvoting interests, debt instruments, fixed assets subject to a long-term lease or other similar assets that do not provide such members with control of the business?
  3. Do the minority interest owners or the family members not active in the business have any rights of control over the other participating family members or have rights to “cash out” their ownership interests?  These rights must be documented in a shareholders agreement, operating agreement or partnership agreement to which all owners and family members are subject.  The agreement should also provide for the rights of family members to acquire ownership interests in the event of divorce, death or termination of employment and should fix a value for the interests.


The business succession plan should contain a strategic plan for the future management of the company.  The plan should identify the key employees, whether or not family members, who will contribute to the successful growth of the company as future leaders.  The business should obtain their participation in the formulation of the business succession plan and should attempt to secure the continued employment of these key leaders through employment agreements and through incentive compensation vehicles, such as stock options, bonuses, deferred compensation and partial ownership of the business entity.  The owner should take such steps as are necessary to ensure that management can continue operating the company without being required to surrender to the demands of family members unrelated to the business.

The owner may also decide not to give management unfettered control of the business.  This may be especially true if management consists of certain children who would have the ability to pay themselves significant compensation to the exclusion of the remaining children. If family members were not ready for control, the business owner could designate a transition management group, through a voting trust, family trust or similar vehicle, for the period of time the owner feels is necessary for such members to mature into responsible business managers.


The family should not implement the business succession plan unless it creates a mechanism to provide the owner with financial security for his or her retirement.  This aspect of the plan should normally take on greater significance if the founder transfers control of the business during his or her lifetime.  To achieve financial security, the family should consider nonqualified retirement arrangements, such as an executive deferred compensation retirement plan, or qualified arrangements, such as pension or profit sharing plans or an ESOP.  The owner should also consider installment sales of ownership interests in the business, potentially with a self-canceling feature, and leases of real and personal property necessary to operation of the business, as additional sources of retirement income.


Liquidity issues arise both for the business itself and for the family members who are involved in the business.  Liquidity is necessary for the business to meet future contingencies and to create reserves for ongoing capital needs.  It may be necessary for either the business or the business partners to meet obligations under a buy/sell agreement.  It may also be necessary for the family of the owner at his or her death to meet estate tax obligations and after his or her death to provide additional security and liquidity for other needs.  The strategic business succession plan will incorporate planning to meet each of these objectives.  If the owner has entered into a buy-sell, operating or partnership agreement with the other business partners, they as a group should consider funding these obligations with key-man life insurance.  However, the owner must ensure that any buy-sell provisions in such agreements, which are just as important as the liquidity itself, facilitate the transition of ownership so as to prevent the disruption of the business.

In deciding upon the level of additional liquidity necessary for the family, the owner should estimate the liquidity that will be available after his or her death.  This liquidity may arise from the sale of assets other than the family business or from other income-producing assets.  This liquidity may also arise from life insurance.  The family should also consider implementing an irrevocable life insurance trust (“ILIT”) or a life insurance partnership (“LIP”) as the vehicle to hold the life insurance policies for the benefit of the family.  With an ILIT or LIP, the family can shield the life insurance itself from estate taxes (and avoid paying potentially half of the insurance to Uncle Sam) to further increase the liquidity needs arising when they are needed most – the death of a loved one.  The ILIT or LIP should be an integral consideration in formulating every business succession plan.


Taxes are an important area of discussion for every business succession plan.  The family business owner must consider the federal and state income and transfer taxes applicable to the business and the family in creating and implementing the plan.  As discussed in the section below, there are several vehicles available to reduce or potentially eliminate estate taxes.


As a final stage of its business succession planning, the family should revisit its estate plan.  The estate plan should serve to compliment the objectives of the business succession plan. It should first contain the standard family and marital shares to take into account the remaining available exclusion from estate and gift tax at death.  It may also include trusts or gifts utilizing the federal generation-skipping transfer tax.  This latter planning is implemented to pass $5,000,000 of property to future generations without subjecting such property to transfer taxes in those generations.

The estate plan should carry through with the business objectives of transferring ownership during life or at death in a manner that causes minimal disruption in the operation of the business.  If the transfers will take place during life, the business owner should determine the optimal manner of gifting business interests, whether outright, in trust or through a family business entity. The estate plan could also be used by the business owner to equalize, whether with business interests or other assets, the “fair” shares of the children of the owner.

The family business owner should also consider more advanced planning techniques, such as a family business entity.  This is an excellent vehicle to create a structure for the selective control of assets while allowing all family members to realize income from such assets.  The owner should also consider installment sales of business interests and other assets, including sales to trusts, and grantor retained annuity trusts.

Finally, if charitably inclined, a family business owner might consider the charitable remainder trust.  This vehicle is a powerful tool that has estate and income tax benefits for the grantor of the trust.  The business owner may also consider charitable lead trusts and a family private foundation to further enhance their philanthropic interests.

Titling Real Property: The Benefits of Using LLCs and Revocable Trusts

Titling Real Property: The Benefits of Using LLCs and Revocable Trusts

It is well-known that in Florida, a great way to own your home is in your individual name so that the home can qualify for homestead protection. Florida’s homestead laws are among the broadest in the country, and exempt homestead property from levy and execution by judgment creditors.

However, homestead laws extend only to your principal, permanent residence. What happens if you want to purchase a beach condo, an office building, or a piece of land to potentially build on in the future? How you title this property can have a significant effect on your business and your other assets.

Generally, holding each piece of real property in a separate limited liability company (“LLC”) owned by a revocable trust is an effective way of ownership with a number of business and estate planning advantages:

  1. Asset Protection. Owning property through an LLC maximizes the protection for your personal assets. Because there is an inherent risk of liability that goes along with property ownership, you, as a property owner, could potentially be subject to tort claims stemming from activities that occur on the property. If the property were held in your individual name or in the name of your revocable trust at the time a tort claim was made and the claim resulted in a judgment against you or your trust, your personal assets or the assets of your revocable trust could be attached to satisfy the judgment. However, if the property is held in an LLC and is the only asset of the LLC, only this property can be used to satisfy the judgment. The same principal applies if you hold a number of real properties, each with a significant value. Generally, each such property should be placed into a separate LLC for these purposes.
  2. Estate Planning. Having each piece of real property in a separate LLC has advantages from an estate planning standpoint in that it makes it simple to transfer ownership to family members. The ownership of real estate held by an LLC is represented proportionately by a member’s shares of an LLC. Rather than filing a new deed, the owners can transfer ownership of the property to their children by simply issuing them membership interests in the LLC. This makes gifting away interest in the real estate very simple and cost effective. Further, the LLC could also be structured with voting and nonvoting units. The owner can preserve control over the property during his or her lifetime and, at the same time, move some of the value of the property out of his or her estate, by gifting only the nonvoting units to family members. The owner could then prescribe how the property is to be controlled at his or her passing by devising the voting interests in the LLC to one or more beneficiaries of the owner’s estate.
  3. Avoidance of Probate. Owning real property through an LLC that is in turn owned by a revocable trust enables one to avoid the difficult probate process with respect to that property, which in turn eases the administration of your estate in the event of your passing.

A less effective, yet still a better way of owning real property than in your individual name, is placing the property into a revocable trust. This type of ownership does not have the asset protection and estate planning benefits described above, but it does remove the property from the probate process at your passing.

If property has already been purchased, it is still possible to take advantage of some of the protections discussed above by transferring the property into the appropriate holding structure. A major consideration as to whether to transfer the property into a revocable trust or an LLC is whether the real property is encumbered by a mortgage. If the property is unencumbered, it should be transferred into a newly formed LLC to take advantage of the LLC’s asset protection attributes. If there is a mortgage on the property, however, a transfer into an LLC would trigger documentary stamp taxes in the amount of $.70 on each $100 of the mortgage payable to the state of Florida. So, for example, on a $500,000 mortgage, the documentary stamp taxes payable to the state at the time of the transfer would be $3,500, which, for some, may not be worth the benefits of the transfer in the first place. If this property is transferred into a revocable trust, however, nominal documentary stamp taxes would be due on the transfer.

While the Florida LLC is an effective and frequently used vehicle for holding real property, there are other options that may be more appropriate for property owners. The specific circumstances and goals of the property owner must be evaluated before making this decision.

Attorney Alexander S. Douglas, II Named OCBA Estates, Trusts & Guardianship Committee Co-Chair

Attorney Alexander S. Douglas, II Named OCBA Estates, Trusts & Guardianship Committee Co-Chair

ORLANDO, FLORIDA – ShuffieldLowman Partner Alexander “Alex” Douglas has been named Co-Chair of the Orange County Bar Association’s Estates, Trusts & Guardianship Committee.  Practicing law for more than 23 years, Douglas provides wide-reaching knowledge in a broad variety of areas of litigation, including commercial, business, probate and trust, fiduciary and contested guardianship cases.    He is a Martindale-Hubbell AV rated attorney who is known for his extensive experience in the areas of trust and probate litigation.

A frequent speaker on the topic of fiduciary litigation, he presented recently at a CLE seminar sponsored by the Orange County Bar Association on probate and trust litigation. Douglas will speak later this month at a probate seminar on the topic of financial powers of attorney and advance healthcare directives, drawing from his extensive experience litigating over such instruments.

Douglas earned his Juris Doctor degree, with honors, from Florida State University College of Law.  While there, he was a member and president of the F.S.U. law school moot court team and competed in national moot court competitions. He also served as an extern to then Justice Rosemary Barkett of the Florida Supreme Court. Alex holds a Bachelor of Arts degree, with honors, from Washington University in St. Louis, Missouri.

The OCBA has 24 committees designed to provide current and timely information in its members’ legal specialty areas, to develop CLE seminars, to submit articles for The Briefs magazine, and to participate in a wide variety of community service projects and OCBA-sponsored social events.

Shuffield, Lowman & Wilson, P.A., located in downtown Orlando in the Gateway Center building, and in the heart of Lake County’s Downtown Tavares, is a full service law firm practicing in the areas of corporate law, securities, banking and finance, bankruptcy and creditors rights, land use and government law, real estate, commercial and civil litigation, labor and employment, estate planning and probate, guardianship and elder law, mergers and acquisitions, intellectual property, patent licensing, trademarks and copyrights, tax law, planning for high net worth families with closely held businesses,  and environmental law.

ShuffieldLowman Partner Heidi Isenhart Named 2013 Super Lawyer

ShuffieldLowman Partner Heidi Isenhart Named 2013 Super Lawyer

ORLANDO, FLORIDA – Heidi W. Isenhart, a partner with the law firm of ShuffieldLowman, was recently selected as a 2013 Florida Super Lawyer.

Super Lawyers, owned by Thomson Reuters, recognizes attorneys who have distinguished themselves in their legal practice. The selection process is multi-phased and rigorous. Peer nominations and evaluations are combined with third-party research and validation of the attorney’s professional accomplishments.

Isenhart is a Martindale-Hubbell AV-rated attorney who practices in elder law, Medicaid planning, guardianship, probate and trust administration, probate and guardianship litigation, estate planning and special-needs trusts. In addition to many past honors, she was recently been recognized for her outstanding level of pro bono work by the Florida Supreme Court, The Florida Bar’s Young Lawyers Division and the Florida Pro Bono Coordinators Association.

Shuffield, Lowman & Wilson, P.A. located in downtown Orlando in the Gateway Center building, and in the heart of Lake County’s Downtown Tavares, is a full service law firm practicing in the areas of corporate law, securities, banking & finance, bankruptcy & creditors rights, land use & government law, real estate, commercial and civil litigation, labor and employment, immigration, estate planning and probate, guardianship & elder law, mergers and acquisitions, intellectual property, patent licensing, trademarks & copyrights, tax law, planning for high net worth families with closely held businesses, and environmental law.

A Defective Deed….Now What?

A Defective Deed….Now What?

The closing documents have been signed and recorded, the funds have been disbursed, and the parties are thrilled the transaction has closed. Unfortunately, closing the transaction does not always signify the end of the file. Post-closing issues sometimes arise, and when they do, it is important to resolve them as quickly and efficiently as possible.

An Error in the Legal Description of the Deed

One such post-closing issue that may arise is a mistake in the recorded deed. There are several examples of what constitutes a mistake in the recorded deed; one of the most common being an error in the legal description of the property being conveyed. An erroneous legal description attached to a deed operates to cause the recorded deed to be defective, and impacts the chain of title. Some examples of an incorrect legal description in a recorded deed include, but are not limited to, a wrong call in the metes and bounds legal description of the property conveyed, an incorrect lot number in a platted legal description, or an incorrect plat book reference. However, the good news is that it can be corrected by taking the required corrective steps.

Improper Way to Correct an Error in the Legal Description

A defective deed may not just be re-recorded with the new, correct legal description attached to it, or with information added to the legal description after execution. In Connelly v. Smith, 97 So.2d 865 (Fla. 3d DCA 1957), the section, township and range were omitted from the legal description of the property being conveyed. The grantee in that transaction inserted the section, township and range after execution and delivery of the deed, and then re-recorded the deed. The court ruled the legal description in the original deed was insufficient, and the grantee’s voluntary insertion of information to the legal description after execution and delivery was of no effect.

Proper Way to Correct an Error in the Legal Description

When a mistake in the legal description is discovered, the correct process by which the mistake is remedied is to: (1) have a corrective deed re-executed by the original grantor and properly witnessed and notarized in accordance with Florida law; and (2) have the new corrective deed recorded. Having the original grantor re-execute a corrective deed and recording the same is the only way to effectively correct an error in the legal description of a defective deed.

Drafting the Corrective Deed

When recording a corrective deed, it is helpful to include a cross reference within the corrective deed that references the recording information of the defective deed. For example, a notation within the corrective deed may be included that states, “This corrective deed is given to correct an error in the legal description of that certain deed dated ______ and recorded ______ in Official Records Book ___, Page ___, Public Records of _____ County, Florida.” The notation is not necessarily required, but may aid in the understanding the chain of title in transactions that follow.

In the frenzy to close a transaction, occasionally a mistake such as an error in the legal description attached to the deed may occur. In the event that it does, the mistake can be remedied but only by having a corrective deed properly re-executed by the grantor and recorded. Since parties move on and memories and feelings fade or change, it is important to act as soon as possible to properly correct an error in a deed as soon as the error is discovered.