Academic journal article Journal of Accountancy

Succession Planning with a Business Living Will

Academic journal article Journal of Accountancy

Succession Planning with a Business Living Will

Article excerpt

Individuals often sign a "living will" to cover health care decisions in the event of their disability. We call this concept--involving business decisions--a business living will. While disability insurance can address some of the financial consequences of an owner's injury or illness, there are other important questions a business must consider when developing a business living will as part of its succession plan. It's important to remember that the unique nature of each company and its owners will require an individualized planning approach.

COMPENSATION

* How long can the business provide full or partial compensation to the disabled owner? The answer depends on the company's financial condition and whether it must hire a replacement for the disabled partner.

* How long can the business survive without a disabled owner doing his or her job or being replaced? Depending on the disabled owner's responsibilities, another partner or employee may be able to handle them.

FAMILY PROVISIONS

* How will remaining owners or managers balance the needs of the disabled owner and his or her family against the needs of the business? It's essential the business' owners meet to discuss this issue before any partner becomes disabled so business judgment prevails over emotions. …

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