The Succession Accord®

Enhancing the chances for transition success

The Succession Accord® is a tool which helps business owners and their family stakeholders make better decisions in terms of the succession and estate planning of the family enterprise.

There is greater certainty that the entire family will achieve harmony in their family and harmony in their relationship to the family enterprise so that when the key shareholder leaves the stage at death the value of the enterprise is protected (“Liquidity”) and the family members are prepared for their stewardship role as owners and beneficiaries (“Harmony”).

The Succession Accord®, the Family Business Accord®, and the Family Accord® have been developed to go beyond the traditional method of succession and estate planning for family enterprises which tends to focus exclusively on life insurance, saving income taxes, creditor protection and trust planning to at least an equal focus on creating harmony in the family and the family enterprise.

The two primary problems triggered by the death of the key shareholder are a potential liquidity crisis and a harmony crisis.

Illiquidity: The deemed disposition of the shares of the family enterprise creates a capital gains income tax liability and other estate costs which must be paid before the residue of the owner's estate is distributed creating an immediate need for cash or liquidity problem. The liquidity problem can be solved by life insurance on the owner to fund the estate plan. This strategy is generally accepted by business families and their professional advisors as the most tax efficient and economical way to fund the income tax or estate liability either on a single life or joint last to die basis. The life insurance is also an excellent vehicle to provide cash to equalize claims amongst family stakeholders and to buy out family members who wish to have cash rather than shares.

Disharmony: Disharmony is created when the family stakeholders perceive they have been dealt with unfairly compared to other family stakeholders. Oftentimes, this is because the owner drafted the succession and estate plan with professional financial and business advisors exclusively in isolation of family members. The best practices of the most successful multi-generational business families in the world do the opposite. They create a vision for the family enterprise and the family first and have the tax, legal and insurance experts execute the legal documents to align with the vision. These business families also set up a governance structure for better decision making and to communicate the vision of the succession and estate plan so that when the owner and leader dies the family stakeholders understand and are well prepared for their roles to continue this vision. This is accomplished by creating a Succession Accord® which is a non-legal document that has been rehearsed many times with the family and the key professional advisors so that business and family continuity is maintained for many generations.

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