Q. Toward the end of the year, the House passed a measure to freeze the Federal Estate Tax at 2009 rates/levels. As of December 31, no action had been taken by the Senate or the President. So, as I understand it, in 2010 there is no estate tax. Then in 2011, without some action by the government, the limits revert back to rates we had in 2001. How do we plan with this type of a situation, especially as it relates to our succession plan?

A. Please keep in mind: It is not necessarily the imposition of an estate tax that destroys the integrity of an operation. It is usually the inappropriate application of estate planning tools -- designed to mitigate the estate tax -- that divide and destroy the operation. Many estate planning professionals rarely account for the dissimilar objectives between the siblings who are active in the operation and those that are not. Most advisors are uncomfortable with the 'equal isn't fair; fair isn't equal' discussion. They often ignore the topic and then proceed to use off-the-shelf techniques to mitigate the estate tax -- a practice that may cause the operation to be parceled-out and sold in the estate settlement process.

In the scheme of things, the estate tax law only matters as one of the elements that must be covered in a comprehensive succession plan. The estate tax law will affect planning, and knowing that estate tax laws are changing, plans must remain flexible. A planner must be aware of, and account for whatever law is in affect -- adjusting to changes in the law so that a family’s succession intentions are achieved. Succession is a moving target. Every aspect of the plan must be dynamic enough to weather the trials and tribulations of a growing enterprise, a vibrant family, a changing business landscape and ever more challenging laws.

As you begin the New Year and initiate the succession planning process for the first time, or review your current plan – in light of the current estate tax law – consider the following questions.

Does your advisor use a comprehensive planning model for succession? I encourage a model that includes these four elements:  

Management Continuity / Ownership Transition – Transferring ownership may be as simple as identifying tomorrow’s leaders, establishing a time frame for transition and defining the transfer methodology. Maintaining management strength should be the focus as you evaluate each transition alternative.

Leadership Development – Leadership is about people management, team development, project coordination, business design and professional growth. It is crucial to continuing growth and lasting success.

Estate Planning – An effective estate plan is designed to maintain the family’s financial security, plan for equitable distributions and mitigate the estate tax liability.

Does your advisor employ a specific succession planning process? I use a six step process to ensure a clear understanding of your goals and a thorough vetting of alternative succession solutions. 

1. Consultation – includes a review of succession planning principles, input from all active family members, and a discussion of specific succession goals and intentions.  

2. Discovery – confirms the family’s specific succession objectives. It includes collecting qualitative and quantitative information. 

3. Preliminary Plan – an open discussion of preliminary recommendations related to Ownership Transition, Leadership Development, Estate Planning, and Financial Security.

4. Final Plan Design – final recommendations for each element and an implementation schedule with actionable steps to achieve the families succession goals.

5. Implementation – working with the client’s respective professional advisors to ensure compliance with the plan, and ensuring a timely implementation.  

Does your advisor understand the role of estate planning in your succession planning?