Successful Succession Planning Depends on Updates

Providing business owners with a solid succession plan can be crucial to the long-term protection and preservation of their entity. While many advisors are familiar with how to structure and fund a succession plan, many fail to provide proper maintenance after the creation and implementation of these agreements. This can have dire consequences that undermine the intended effectiveness of the plan and diminish its ability to protect business owners and their families.

To better explain, imagine a small business has two partners and is worth around $1 million. Each of the owners plays an active role in customer acquisition and servicing, and they are looking for a succession plan to protect their entity. Perhaps their advisor helps them facilitate a buy-sell agreement where they each take out a $500,000 life insurance policy on one another and key person insurance in the amount of $250,000. This would most likely meet the needs of the owners and would thus be a good start at succession planning. Disability insurance should also be considered but will be omitted from this example for simplicity.

Now let’s look ahead to five years down the road. The business has grown rapidly, and perhaps it is now worth $10 million. It is likely that other key executives have come on board and have acquired some equity in the firm. Hopefully, the owners had an advisor who thought to check in with them at least once a year to adjust both the succession plan and the funding vehicles as needed. Unfortunately, this is usually not the case.

Were tragedy to strike and ongoing maintenance of the succession plan had not occurred, there could be many serious ramifications. Even if there were still only two partners, the remaining person would need $5 million to buy out the family of the deceased partner. Without an update in funding, he would be $4.5 million short. Assuming there were other partners at that time, the outdated succession plan would not provide for how they would buy out the deceased, and there would be no funding vehicle to enable that transaction. Key person insurance in the amount of $250,000 might no longer be adequate to cover the loss in business development, customer relations, expertise, etc., that the executive brought to the company, as his role likely grew alongside the company.

Without ongoing updates to a succession plan, the success and growth a business owner hopes to have can present legal and financial ramifications that the plan was originally intended to prevent. It is surprising that some advisors set up succession plans and then fail to keep them current, given the opportunity this presents. Beyond the obvious duty to best serve and protect the client, a yearly succession plan checkup allows for the ongoing development and strengthening of the relationship with these business owners (who are often high net-worth individuals) and the opportunity to increase policy amounts (through further funding of the succession plan).

Even if an advisor is aware of the need to keep succession plans current, the business owners themselves may prevent the plans from being properly maintained. Pulled in many directions from the day-to-day responsibilities of running a business, it can be hard for these clients to make time to revisit their succession plans, and it can be easy for them to keep putting off time to meet with their advisor to discuss updates.

Here are some important steps you can take to help ensure reviews and maintenance take place on a yearly basis:

Start early

When first meeting with a client and throughout the process of creating a succession plan, it is important to properly explain the need for ongoing evaluation of these agreements. While the agent educates the business partners on the need for a buy-sell agreement or key person insurance, the agent can also convey that these are constantly evolving documents that will need to be re-examined on a yearly basis to ensure that strong protection remains in place. Having this in mind will not only prepare these owners for when the advisor calls to schedule a checkup, but also help to reinforce how important succession plan updates can be.

Include it in the agreement

Advisors can also go a step further and recommend language including a yearly update in the original succession plan, providing a legal basis for these refinements. This can serve to highlight the need for the meetings and ensure that modifications are not constantly tabled until the executives can find time to fit a review into their ever busy schedules.


Scheduling a yearly meeting and disseminating updated information to an advisor might not be top-of-mind for a business leader. Working with a designated employee on the business owner’s administrative team from day one may help better keep the process on track. That representative can help to facilitate the review each year and can plan on sending the advisor copies of updated financials and a current corporate organization chart for evaluation prior to the meeting. Streamlining the process and including a dependable contact will lighten the load on the executive, eliminate the need for constant follow-ups and likely make the advisor’s job easier as well.

Be persistent

When all else fails, persistence can be a good option. These owners most likely want to speak with their advisor and understand the importance of updates, but a hectic schedule can make it difficult to find time. The advisor can ask to be referred to one of the business owner’s associates to coordinate the meeting or also inquire when a good time to revisit scheduling might be if there is no such liaison.


Despite the challenges at hand, it is important to make sure a succession plan stays current to avoid the complications that can arise when an outdated agreement and funding arrangement is all there is to fall back on. Maintaining a current succession plan will not only give the company owners and their families the comfort of knowing their business is protected, but also help you super-serve, strengthen, and grow your client relationship.

By Seth Salomon from the April 01, 2012 issue of Life Insurance Selling Magazine.  Seth specializes in corporate/personal finance as well as small-business operations and strategy.



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