Succession Planning & its Significance today By Nazneen Ichhaporia and Bhavika Dadlani


Succession planning is a process through which individuals, families and family owned businesses seek to identify the future leaders of their estate, family and organization. It helps them answer a very significant question – What will happen to my estate and business once I am gone? Succession planning gives them the opportunity to answer this and plan and control what will happen in future long after they are gone, rather than leaving this crucial decision to fate.

Importance/ Benefits of Succession Planning:

  • Succession Planning helps to protect assets of the family;
  • It aids business continuity;
  • Transition becomes easier since everything is pre decided and agreed upon;
  • Encourages proper governance structure since rights and powers of family members are determined;
  • Prevents conflicts and helps maintain family harmony;
  • Important tool for efficient tax-planning.

Although Succession Planning is beneficial, many of the families do not prefer having a succession plan. The reasons for the same are:

  • Many are under the misconception that succession planning is necessary only for large families;
  • Uncomfortable to pass on the control possessed by the members;
  • Awkwardness in discussing;
  • Enjoyment of status-quo and not being acceptable to change;
  • Most individuals avoid since they see succession planning as a complex task and wish to avoid risks;
  • Uneasy to open up with external advisors;
  • Nomination is sufficient;
  • Lastly, most of them are of the opinion that succession will be automatically taken care of with time.

Additionally, lack of communication, emotional rivalry, alien’s entitlement (for example, son-in-law or adopted child’s rights) are some of the peculiarities in Indian families which discourage Succession Planning.

Modes of Succession Planning:

Trust and Will are the most common used methods of Succession Planning.

                     TRUST

                          WILL

Control as specified in Trust Deed

Control through ownership during lifetime

Easy to enforce

Complexities in enforcing (way to disputes)

Easy transition

No easy transition (Probate process)

From the above, it would appear that Trust is more favourable tool of Succession Planning as it attracts less complexities. Further, it can be implemented in a planned and phased manner, even during the lifetime of the asset owner, as opposed to a will which can be effected only upon the death of the asset holder.

Phases of Succession Planning:

1. Planning/ Discussion:

Discussion is the first step in any Succession Planning. Every family needs to have a vision and decide on allocation plan, consider special needs of members of the family, etc.

2. Build Structure:

Once the vision is clear, it is necessary to get help from external advisors in relation to legal implications like taxation, stamp-duty, pre-restructuring, etc.

Implementation:

Finally, to implement the plan, it is necessary to enter into family arrangements/ charter which will enable to govern the succession and aid in conflict resolution, if any.

Our Views:

Succession Planning is a process of attaining stability and ensuring smooth functioning of organization. Insurance is considered as an inevitable tool for physical protection of the organization from unforeseen circumstances. Similarly, Succession Planning is equally important to increase the productivity and adaptability of any family business in unprecedented situations.

Moreover, there is no one-plan-fits-all situation in case of Succession Planning. Every planning and arrangement subsequent thereto will depend upon the family/ business structure as well as other circumstances surrounding the same.

Additionally, it is important to regularly revisit the plan to ensure that the objectives are well served in relation to changing laws and times.

Our suggestion is to: (i) meticulously analyse the objectives as well as the family and business structure; (ii) identify the key positions; (iii) recognize the eligible members to fill the same and plan accordingly.

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