Five succession planning mistakes I see far too often, and what they cost the next generation
By Mina Alexander | Alexander Tax Law
70% of family businesses don’t survive the transition to the second generation. 90% don’t survive the third.
The numbers are puzzling, especially because these business owners have great business acumen. Most of these failures aren’t because the next generation isn’t capable but because the planning was rushed, incomplete, or never happened.
The five mistakes I see far too often:
1. Waiting too long.
Effective succession planning needs 5–10 years of runway. Estate freezes, share reorganizations, family trust set-up, and successor mentorship all take time. Owners who start at 65 have already missed the easiest planning windows. It’s not too late, but certainly not as beneficial as starting earlier.
2. Confusing the will with the plan.
Your will controls what you OWN at death. It does not control what your company DOES. Shareholder agreements, voting trusts, buy-sell arrangements, and family employment policies do that work. A will alone is not a succession plan.
3. Treating all children equally instead of fairly.
Not every child wants the business. Not every child should have it. Equal often creates problems. The active children resent the passive ones, decisions stall, and the company underperforms. Whereas if we create different shares with different rights it allows for the business to continue smooth operation, while children get separate but equal compensation.
4. Ignoring the tax bill at death.
Without planning, your death triggers a deemed disposition of all your shares at fair market value. A $5M company can generate $1M+ in personal tax, payable by the estate. This may force a fire sale of the business. Insurance funding, estate freezes, and the capital dividend account need to work in concert.
5. Skipping the conversation.
The single most predictive factor of successful succession is whether the family has talked about it. With the proper professionals if necessary. Avoidance is not a strategy, it is a recipe for failure.
Start the plan while you still have the runway
Most of the tools that make a succession work, estate freezes, share reorganizations, family trusts and insurance funding, need years to do their job properly. We help owners map the transition, structure the shares around who is actually running the business, and deal with the tax before it becomes the estate’s problem.
Alexander Tax Law
100 Bass Pro Mills Dr., Unit 49, Concord, ON L4K 5X1
416-639-1778 ext. 101 | [email protected] | alexandertaxlaw.com
Practical. Efficient. Strategic.
