VMM partner Morris Sabbagh, a member of the Tax Law, Wills, Trusts, and Estates, Trust and Estate Planning, and Elder Law practices, was invited by the New York State Society of Certified Public Accountants (NYSSCPA) to discuss the legal aspects of exit & succession planning for businessowners and executive in their journal, Tax Stringer.
This article is the first part of a three-part series on succession planning. Part II, by VMM managing partner Joseph Milizio, will focus on Business Planning. Part III, by firm colleague Steven Goodman, will focus on Financial Planning.
The article can be read here and below.
The Success in Succession, Part I: Estate Planning and Estate & Gift Tax Planning
By Morris Sabbagh, Esq.
Published Date: Aug 1, 2024
This article is the first part of a three-part series on succession planning. Part II will focus on Business Planning, and Part III will focus on Financial Planning.
Whether you’re planning to pass your business to the next generation or simply to make an exit, and whether it’s your own business succession or a client’s, the success of your succession plan will depend on how well it addresses both tax and nontax issues.
As a CPA, you’re well versed in the former, but you should also be mindful of the various legal aspects involved in distributing assets, preventing dissipation of assets and preserving personal and family wealth, maximizing benefits and exemptions, controlling your business after succession and even death, and other matters.
If you’re a sole practitioner or are in a small firm, one thing you should plan for is the event of your temporary or permanent incapacity or death. It may not be pleasant to think about, but life happens. If you can’t operate your practice, are you safeguarded against losing your income sources or entire businesses? Have a detailed plan in place to preserve and/or to transfer the practice, which looks after your best interests and your clients’ as well. In practical terms this means a:
Business Continuation Agreement (BCA).
One option is to have a BCA in place. This is a contract with someone—usually a trusted employee or another firm or professional—to take over your practice, either temporarily or permanently.
The BCA should be with a person who or firm that has the expertise to handle your work, especially if your practice involves auditing and attestation, as well as the capacity to take on additional work on short notice.
It should be comprehensive and tailored to your needs and wishes, addressing particularly these details:
- When the agreement is triggered (including different scenarios and stipulations)
- Financial terms (e.g., purchase price, payment structure)
- Client lists, types and valuation of services, important deadlines
- Noncompete and restrictive covenant provisions.
- Staff retention and compensation.
- Billing and collection protocols, client rates, etc.
- Client lists, dates, and deadlines; should be updated regularly to allow a successor to take control of your files effectively.
If There’s no BCA in Place
There isn’t always someone you trust to step in and take over for you. In that case, you can help safeguard your legacy by having these documents prepared:
- Power of Attorney. Create a separate POA for the practice, especially with respect to audit and attestation services. (For example, if you name your spouse as your agent on your power of attorney, you may need to have a separate POA appointing a fellow accountant to handle your practice.)
- HIPAA release. Allow a trusted person you designate to access your medical information, which may be needed to trigger the POA.
- Last will and testament. Make sure to appoint a special executor and/or trustee to aspects of your accounting practice that your personal executor or trustee are unable or not permitted to handle.
- Reach an agreement with another professional to close or sell the practice in event of death or permanent disability.
- Draft corporate/LLC resolutions appointing an agent to act in the event of death or permanent disability.
Regardless of how you pass control, you’ll need to keep the following information readily available:
- Computer and account logins, passwords, voicemail codes, etc.
- Usual expenses, lease agreements
- Payroll information
- Professional liability insurance policy
- Instructions on how to access bank accounts; consider adding an agent or employee on both accounts and safe deposit boxes
- Security procedures
- Working papers: make sure to have a system in place to get client approval prior to transferring work documents
- Location of files
- To allow a transition to go smoothly, prepare a form to notice clients in advance, explaining why you selected the practitioner and why it’s a good fit for them.
- Introduce your successor to your staff while you’re competent. Retaining staff will be a major factor in a successful business transfer.
There are many other legal considerations when planning your business exit or succession, but the ones above should give you an initial roadmap and get you thinking about how you want your post-exit future to look and how to prepare for it, giving you and your loved ones security and peace of mind.
Morris Sabbagh, Esq., is a partner in Vishnick McGovern Milizio LLP’s tax law; wills, trusts, and estates; trust and estate planning; and elder law practices. He focuses on preservation of wealth and administration of estates and trusts, and works with high-net-worth individuals to prevent the dissipation of assets to taxes, creditors and long-term care expenses. He can be reached at msabbagh@vmmlegal.com and 516.437.4385 x120.
Views expressed in articles published in Tax Stringer are the authors' only and are not to be attributed to the publication, its editors, the NYSSCPA or FAE, or their directors, officers, or employees, unless expressly so stated. Articles contain information believed by the authors to be accurate, but the publisher, editors and authors are not engaged in redering legal, accounting or other professional services. If specific professional advice or assistance is required, the services of a competent professional should be sought.
