Uncoupling the estate plan vs succession planDecember 15, 2022
Many people think the terms “estate planning” and “succession planning” are two ways of saying basically the same thing. In fact, though, they are separate processes with different end results. An estate plan covers all of how a person’s assets will be handled when they die or if they become incapacitated. A succession plan deals only with what happens to the family business or enterprise when the current owner is no longer there. Hence, a succession plan is a component of an estate plan, but not so much the other way around. The important thing is for the business owner to know that they need to create both types of plan, not just one or the other.
The confusion between succession and estate planning probably dates from the era when “succession” often simply meant the business owner dying and leaving the business to his or her heir. In these cases, business succession and estate management were indeed largely (though still not entirely) the same thing.
But this scenario is no longer a common one. To the current generations of business owners, succession is about what happens to the business after they retire, not after they die. And increasingly, they plan for these two things to happen very far apart. For example, among Millennial family business owners, a remarkable 78% plan to retire before the age of 50. (Compare this to the “Silent Generation”, born before 1945, who plan to retire at age 70 or older—often meaning not at all.) Chances are, the estate plan for these Millennial family business owners won’t kick in for decades after the succession plan has. 
On top of this, the idea of the family business going to an heir at all, whether upon the owner’s retirement or their death, is quickly becoming a thing of the past. Recent surveys show that in Canada, a mere 31% of family business owners intend to keep the business in the family after they retire. The rest plan to either sell it or dissolve it. These two trends mean that estate planning and succession planning have become almost completely uncoupled.
We can see the distinction between the two types of plan in their differing checklists. Essential components of an estate plan include:
- A will and trust(s)
- A compilation of all financial assets (including the family business)
- Power of attorney
- A life-insurance policy
- Named beneficiaries and bequests
A succession plan, meanwhile, has at its core:
- An identified successor for the business OR a business-sale plan
- A buy-sell agreement or shareholder agreement governing the transfer of shares and laying out financing for their sale
- Key-person life insurance
- An independent business valuation
That said, there is a great deal of interconnection between the two plans. For example, life-insurance policies that are in the estate plan as a way to defer taxes might play a key part in the financing element of a succession plan’s buy-sell agreement. Provisions made in the estate plan for the financial well-being of the surviving spouse can affect whether a family trust is part of the succession plan. Estate freezes in the estate plan that are meant to help the business owner reduce his/her personal tax liability will directly affect the business successor.
Thus, those planning the business succession should refer frequently to the estate plan in order to align goals and priorities, and those carrying out the estate planning need to make sure that the business has a clearly documented succession plan, keeping in mind that such a plan (if properly done) will have many legally binding elements.
With both plans drawn up, documented, and schedule for regular review and updating, the business owner can relax in the knowledge that they have given their vision of the future its best chance at being realized.
 Calabro and Valentino. STEP 2019 Global Family Business Survey. KPMG. https://assets.kpmg/content/dam/kpmg/sa/pdf/2020/step-2019-global-family-business-survey-report.pdf
 Barr, Alan. “Navigating the Future of Family Business.” KPMG. September 2020