I have asked this question of my business owner clients and they often do not have an answer.  Although they have formed a corporation, the business incorporation documents to do not include language to cover these circumstances. 
 
If you are a sole business owner your business may be a risk if you should you become incapacitated.  You must have someone named as your agent to speak on your behalf if you are unable to speak for yourself. Believe me when I say, “This can happen.”  Last year I had to petition the court for a temporary conservatorship for a man that owned his business who had an unfortunate incident during a simple surgical procedure and spent months rehabilitating and unable to work. This meant his business needed to be sold immediately before the value started to drop.  His wife was not a co- owner of the business, there were no powers of attorney in place, and therefore a conservatorship was the only option for her to have authority to sell the business.

The cost of a conservatorship can run over $5,000.00, and can be avoided by having a good estate plan in place that is supported by language in your corporate documents.
 
If your business has one or more co-owners, you might must consider establishing an agreement that, upon any trigger event, especially the death of any owner, their interest is automatically purchased by the business or other owner(s). Known as a buy-sell agreement, this arrangement can ensure that beneficiaries of the departing or deceased owner (including spouses or other family members) don't unintentionally become owners. In the case of death, Llife insurance can be purchased or an irrevocable life insurance trust (ILIT) can be established to cover these buy-sell agreements and provide necessary liquidity.  For other triggers, such as an owner going through a divorce and needing to pay a spouse, an owner “divorcing” the business, or disability of an owner, the business should have a plan to fund in place.  In all cases, the buy-sell agreement should include a fair methodology for determining the value of the business at the trigger, as well as, every 2-3 years.  This enables the owner(s) to ensure that they have sufficient life insurance and to rest assured that they and their families will receive a fair value for their share of the business when, not if, a trigger event occurs.  Remember, all business partnerships end in death or “divorce.”

For more information and assistance with this step I recommend Jim Leonhard, CVA.  Jim is a business advisor with Exit Strategies Group. Email: jhleonhard@exitstrategiesgroup.com; Phone: 916-800-2716
 
At a minimum, a business succession plan should address the systematic transfer of the management and ownership of a business.

Management succession planning may include:

• Development, training, and support of successors.
• Delegation of responsibility and authority to successors.
• Outside directors/advisors to bring objectivity to the process (when necessary).
• Maximizing retention of key employees through equitable compensation planning for management, family/non-family employees, and active/inactive shareholders.

Ownership transfer planning considerations may include:

• Coordination between who will own the business and who will manage the business.
• Consideration of the best interests of the business and the owner's family.
• Timing of a transfer of the business during your lifetime. This may provide you with the opportunity to consult with the successor(s), and generally reduces the risk of a discounted sale of the business.

Once you have established your estate plan, make sure it stays sound by revisiting it at regular intervals or at key life events.

Many people review their estate plan at a regular frequency, often when they review their whole financial plan. This can be done annually, semi-annually, or quarterly; for estate planning specifically, the general recommendation is at least every three to five years or when there is a life event. You may want to get your attorney or tax advisor's help.

And, it's important to understand that the value of your business may continue to grow between the time you plan your estate and when you pass away, and that the taxable estate will include the value as of your date of death.
 
In addition to regular reviews, it’s a good idea to review and update your plan at life events like the following:

• The birth or adoption of a new child or grandchild
• When a child or grandchild becomes an adult
• When a child or grandchild needs educational funding
• Death or change in circumstances of the guardian named in your will for minor children
• Changes in your number of dependents, such as the addition of caring for an adult
• Change in your or your spouse's financial or other goals
• Marriage or divorce
• Illness or disability of your spouse
• Change in your life or long-term care insurance coverage
• Purchasing a home or other large asset
• Borrowing a large amount of money or taking on liability for any other reason
• Large increases or decreases in the value of assets, such as investments & businesses
• If you or your spouse receives a large inheritance or gift
• Changes in federal or state laws covering taxes and investments
• If any family member passes away, becomes ill, or becomes disabled
• Death or change in circumstance of your executor or trustee
• Career changes, such as a new job, promotion, or if you start or close a business

Reviewing your estate and business plan at regular intervals in addition to major life events will help ensure that your legacy, both financial and otherwise, is passed on in accordance with your wishes and that your beneficiaries receive their benefits as smoothly as possible.

916-225-3570   cj@cjwatterslaw.com    http://www.cjwatterslaw.com
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In my experience, many business owners have not included language in their Business Succession Plan to address the needs of the business should the owner(s) become incapacitated or pass away. 

If the business formation is a sole proprietorship and the owner utilizes Schedule C for tax purposes, simply listing the business on the Schedule A of their Trust can be sufficient.   If the business is valuable, then a discussion regarding business entity formation is important, and assigning the business to the owner’s trust may be appropriate.  
 
Planning techniques are likely to have transfer tax considerations that must be evaluated by an attorney and a CPA.  Changes in tax laws, as well as the business owner’s estate value, may require ongoing reevaluation and potential adjustments to the plan by outside advisors.

As the “baby boom” ages, understanding a variety of approaches to planning for business exits and succession planning will grow in importance.  Approaching these strategies as a process and integrating a team of legal, tax, accounting, insurance, and financial professionals may help tax and legal professionals address the multitude of situations their clients may face.

When a business owner wants to pass his or her business on to children, they should be certain the children want to continue to operate the business before gifting it to them.

How children relate must be considered as well.  If children a business owner’s children cannot work amicably, a business may not be the proper forum to attempt to force them to work together. Family behaviors and personalities can be an important part of this decision that organizational psychologists and other management professionals specialize in consulting with people regarding business family dynamics and succession planning.

Whether the next generation wants to be involved in the business and whether they will treat the business as a “sandbox” to play in or a “golden goose” to be nurtured and valued must be considered before the decision to pass on a business is made.

Recently I have worked with several business owners that are working on a succession plan for their business. This type of planning does not only include estate planning, but must also include business planning. The article below, written by Rebecca Abrams Sarelson, contains valuable information to consider when planning for the future of your business.
  
5 strategies for better business succession planning

Rebecca Abrams Sarelson, Contributing Writer
Jan 29, 2015, 9:07am EST

In order to develop an effective succession plan, business owners first need to realize that there is no single approach to succession. Here are some strategies that can help set your direction.
When contemplating retirement or simply the possibility of stepping aside, owners of thriving small businesses often feel challenged when planning for the continuation of their businesses.

In order to develop an effective succession plan, business owners first need to realize that there is no single approach to succession.

What may work for one business may not be effective for another. But here are some general strategies that can be helpful for getting started:

1. Articulate goals for the business
It can be difficult for business owners to be impartial, but take a step back and analyze the current state of the business, its prospects and key areas for expansion or improvement. That can provide a vital road map for the future.

2. Identify successor leaders
Business owners cannot assume that their children have the skills, experience or desire necessary to ensure the continued prosperity of the business. For this reason, consideration may have to be given to key employees. It is imperative that business owners make an honest assessment of each potential successor's abilities and talents and confirm willingness to lead the business. Business owners must devote themselves to train successors in all aspects of the business and the successors must be prepared to commit the necessary time and energy.

3. Establish decision-making policies
If one person cannot perform the tasks necessary to maintain the business, then clear guidelines for running the business must be established. The role each successor is to assume should be carefully articulated and a dispute resolution mechanism should be created.

4. Allow successors to assume responsibility
Many business owners struggle with turning over control. Allowing the successors to step in and assume responsibility while the owner steps back can be difficult. However, permitting successors to have an opportunity to undertake the responsibilities for which they have been trained creates a gradual transition that allows the owner to slowly phase out, while introducing new management to the employees and clients over time.

5. Document an estate plan
Making sure that the ultimate ownership vests in the successors must be documented in an estate and tax plan. Whether the owner should create a lifetime gifting program, purchase life insurance or implement other strategies should be discussed with an estate and tax attorney. In families with multiple heirs, careful consideration needs to be given to the division of the business and other assets amongst the heirs.

Ultimately, small business owners are not guaranteed that a family member or employee will be interested or qualified to assume responsibility for the business. Owners should keep in mind that the business may one day be sold. Keeping concise records may permit the owner, or the heirs, to sell the business at maximum value. A qualified estate and tax professional can assist business owners in facilitating tax advantageous business transitions or sales.

Rebecca Abrams Sarelson is a partner in Arnstein & Lehr’s Miami office. She focuses on international and domestic corporate transactions, taxation, wealth preservation, estate planning, tax-exempt organizations, and real estate transactions. Sarelson handles complex business and tax planning, plus she counsels clients in entity selection, joint ventures, general corporate and partnership matters.