estate & succession ppt

8/7/2019 Estate & Succession ppt

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Introduction:

Succession Plan of any family company is adecisive factor in determining survival or failureof the business.

Facts show that worldwide only about one thirdof businesses makes the successful transitionfrom each generation to the next and only 5% of firms are still creating shareholders valuebeyond the third generation.

Some observers believe that family businessshould never be put in the hands of the nextgenerations, arguing that successors are rarelyas talented as their predecessors.

Succession Planning



Definition:

Family business succession is a two-wayprocess involving the transfer of both

management and ownership. In simple terms,It is the process of intergenerational transferof a business.

Succession is not merely a simple way of

running a business from one generation to thenext as well as change of personnel but it alsoinvolves a fundamental change of system andcontrol.



Founder·s Dilemma: Often transferring family business to the next

generation creates difficult and emotionalladen problems therefore succession planshould be carefully managed.

Succession in terms of business leadership

confronts the founder of a family business witha complex set of options, which can besummarized under six headings:

1. Appoint a family member;

2. Appoint a care taker manager;3. Appoint a professional manager;



4. Exit via sale of the business, in whole or inpart;

5. Exit via liquidating the business;6. Do nothing.

Each option is distinctive and carries its ownset of advantages, disadvantages,opportunities and threats.



Resistance to succession planning

In a family company there are complexforces favoring doing nothing aboutsuccession operating within the founder,the family and the business. Managing the

transition process requires thoroughunderstanding of such forces.

Planning the transition is the principalresponsibility to safeguard the continuity

and vitality of the business. The do nothingoption is the one founder most frequentlyadopt.



A great many factors conspire to reduce the

likelihood of planning for succession. Therestraints are categorized as those connectedwith the founder, the family, the employees, thegeneral environment in which the firm

operates.

The Founder

Family Employees and environmental factors



The Founder

A family company is the personalachievement of the owner. Letting go cantherefore feel like a loss of effectiveness andthe identity (place in the world).

o Reluctance to let go of power and control.Surrending the authority can be seen as ahuge sacrifice of the founder.

o Inability to choose among children often

work against succession planning. Ratherthan choosing the successor based oncompetence, family values prevails on lovingand treating children equally.



o Fear of retirement is also a powerful factor.Owners are often in love with their business, theyfocus on negative considerations such as loss of self esteem and risk of entrusting the business toan unproven successor.

Family

The family provides another source of pressurethat favors avoiding the issue.

o The founder·s spouse is reluctant to welcome andencourage a partner·s move into retirement.



o Family taboos also plays a role. Particularly inrelation to financial matters, cultural norms

discourage discussions between parents andnext generation about the family·s future afterthe parents death.

o Fear of parental death. The next generation

have psychological worries about separation,such feelings can be too painful to permitparticipation in discussions about succession.



Employees and Environmental factors

Employees can present obstacle to successionas:

Employees have close personal relationshipwith the founder that constitute the most

important advantage of working for the familyfirm.

Replacement of the founder with a new comeris seen by employees as a threat to their job

satisfaction and security.

External worries about change- customers arelikely to prove reluctant to trust a new face.



Guidelines for Succession Process

� Start planning early

� Encourage Intergenerational teamwork

� Develop a written succession plan

� Involve the family and colleagues

� Establish a training process

� Plan for retirement

� Make retirement timely and unequivocal



Selecting the right successor

� There are some Important questions to beconsidered regarding candidate·s evaluation

� Are they committed to the company·s mission ?

� Do they have the ability to move the businessforward ?

� Can they think independently and exercise goodjudgment ?

� Do they have the leadership talents to take harddecisions and motivate others ?



� To avoid any danger, the advice and assistance of astrong board of directors is invaluable, both inassessing the capabilities of family members in the

business and any non- family candidates and inmaking the final decision.

WhoT

o Ch

oose ?

� Sometimes the choice of successor seemsstraightforward, there can be a single successor

regarded by the family as the logical choice, who isboth capable and committed and who, during thesuccession planning process grows naturally into therole.



� Some families define logical to mean that theeldest son is automatically the first choice but

such a rule may result in the appointment of theleader who is less qualified than othercandidates.

� Therefore before the process starts it is

important for the family to reflect upon itsvalues, vision and goals using these as a guidefor decision making.

� From the second generation onwards thesuccession grows more complicated as itgenerally involves more than one family unit.



What if there is no scope of transition ?

� Sometimes it gets difficult for the family businessto find its successor who is capable and committedenough to successfully accelerate its growth

leaving the owner with following alternatives ²

� Dividing the business

� Selling the company

� Appointing non- family managers

� Employing the bridge



Conclusions

� An owner should not put any family member into ajob that is beyond his or her capabilities.

� In suitable recruitment causes risk of disputesamong family members.

� Should consider an option of bringing in an

outsider to run the business.



� A caretaker managing director can be employeduntil the transition takes place so that a familymember by taking his or her advice can grow intothe top job in time.



Definition

�

Estate planning refers to the process by which anindividual or his/her family arranges the transfer of assets to the legal heirs in the event of death ordisability of the individual. It includes the

distribution of the real and personal property of anindividual to his/her heirs.

� Estate =Real Property (real estate)

+

� Personal Property (cars, household items,shares,units, and bank accounts. )



Methods

� No Will

� Will

� Trust

� Insurance



No Will

� When a person dies without having made a Will(intestate)

� His property is then inherited by his legal heirs in

accordance with the law of inheritance applicable tohim

� Legal process called probate.

� Legal heirs means close family members such as

one·s spouse, children, parents, brothers and sisters.



Laws of Inheritance

� Hindus, Buddhists, Jains and Sikhs

y Hindu Succession Act, 1956

� Christians

y Indian Succession Act, 1925� Parsis

y Indian Succession Act, 1925

�Muslimsy Indian Succession Act, 1925



Will

�

It is testamentary instrument by which a personmakes disposition of his property to take effectafter his death

y Ambulatory

y Revocable (Section 63 of the Indian SuccessionAct, 1925 )



Advantages Of Will

� Estate owners can prepare a will on plain paper

� No need to pay stamp duty or buy stamp paper

� The estate owner can write anything or any

condition he/she wishes to have before and afterhis death

� No confusion amongst the family members andrelatives regarding distribution



Types of Will

� Privileged and Unprivileged Wills

� Conditional or Contingent Wills

� Joint Wills

� Mutual Wills

� Duplicate Wills

� Concurrent Wills

� Holograph Wills



Trust

� English concept.

� A vehicle under which property is alienated

from the original owners and held by a trustee

for the benefit of others.

�

Creating a trust is a long process.

� Governed by Indian Trust Act.(1882)



Common Types of Trust

� Public Charitable or Religious Trusts

y Income from these trusts is applied to charitable or religious

purposes.

� Private Trusts

y Income from private trusts is available to specified beneficiaries

and not the public at large.

y In some cases, the shares of the individual beneficiaries are fixedor ascertainable, according to the provisions of the trust deed.

y In others (discretionary trusts), the trustee has the power to apply

the income among a class or group of beneficiaries in proportions

determined entirely at the trustee's discretion



Benefits of Trust

� Money collected through a trust gets taxbenefits.

� Trust is mainly to handle, and not manage,

wealth.� Ensures higher confidentiality

� The trust comes into being when the estateowner is alive



Insurance

� Premium Financing

When you finance an insurance premium, you enterinto a contract with a lender to obtain a loan. You

make a down payment usually at least 15-20% of thetotal premium and the lender agrees to pay theinsurance company the balance of the premium. Youagree to repay the lender in installments according to

an established schedule for the amount of the loan(principal), plus interest and any fees.



� Premium financing is not an insurance policy, but ameans of financing the purchase of insurance.

There are other costs associated with the purchaseof premium financing such as interest charges, latefees, cancellation fees, and broker fees. The contractexists between the borrower and the lender, not the

policyholder and the insurance company.Repayment of the loan is made directly to thelender by the borrower. This means that you'll beexpected to repay the loan even if you have adispute with the insurance company and/or thebroker.

estate & succession ppt

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