Smart Succession-Planning Strategies If you haven't thought about what will happen to your business if you're no longer able to run it, these tips will get you thinking about the best plan to put in place.

It's taken guts, savvy and sheer determination, but you've done it: You've made your business a success. You've weathered the market swings, outshone the competition, and kept your customers more than satisfied. Your achievements have enabled you to take care of and protect your family. So what happens if you get hit by that proverbial bus?

According to a recent national survey, 25 percent of family business shareholders who are entering their senior years haven't completed any estate or succession planning other than writing a will. But succession planning for a business owner involves more than just deciding how your assets will be divided after you die.

At its most basic, a succession plan is a documented road map for partners, heirs and successors to follow in the event of your death, disability or retirement. This plan can include a program for distribution of business stock and other assets, debt retirement schedules, life insurance policies, buy-sell agreements between partners and heirs, division of responsibilities among successors, and any other elements that affect your business assets. The plan may also establish the value of your business.

So where do you start? In the succession planning process, you must first clearly establish your goals and objectives, as well as your company's current human and financial resources. How much control of the business do you want to maintain? Is there someone capable of running the business once you step down? Are there key employees who must be retained? Are there sufficient assets to pay the estate tax, equalize the estate and keep the business? How much money do you need to reach your financial goals? And don't forget: While clarifying your goals and wishes is important, it's not enough. You also need to communicate your vision with your family, business partners and key employees.

Here are some additional things to keep in mind when developing a sound succession plan:

• An effective succession plan must be flexible.Business, family and health situations are dynamic, and your plan must be easy to modify and amend.
• Selection of the right individual to take the company reins once you've relinquished them is key.The process of choosing a successor can be akin to navigating a minefield, especially if you have a choice of equally qualified children or employees. And with more than one child involved in the business, you have to decide which one gets to be boss and which ones merely get voting stock. The distribution of money and assets among siblings can be especially divisive. Your challenge: to divvy up business responsibilities and assets in a way that allows your business to survive--and preserves family harmony.
• Knowledge of the impact of the federal estate tax laws is essential.The Economic Growth & Tax Relief Recognition Act of 2001 (EGTRRA) attempted to reduce or eliminate our federal tax transfer system (the estate and gift tax and the generation-skipping tax structures), but it created a tax system with three features: relief, repeal and reappearance. The rate structure is scheduled to be reduced through 2010. Starting in 2004, the gift tax exemption is frozen at $1 million. Thus, an individual can pass more assets at death than during his or her lifetime.
• Become familiar with various exemptions, exclusions and deductionsthat make it possible to reduce the impact of the estate tax. Among these: the annual gift tax exclusion in which you can transfer, gift-tax-free, up to $11,000 per year per recipient and the gift tax exemption, allowing for cumulative gifts, either outright or in trust, totaling $1 million tax free (in addition to the $11,000 annual exclusion).
• Consider establishing now, within your succession plan, a bona fide value of your company.Fair market value is usually defined as "the amount a willing buyer would pay to a willing seller with neither being under any compulsion to conclude the transaction."
• Explore a possible marital or charitable deduction.Transfers between spouses, during their lifetimes or at death, don't incur transfer taxes as long as the spouse is a U.S. citizen. The use of an individual marital deduction, however, doesn't eliminate transfer taxation but simply defers it. With a charitable deduction, transfers to qualified charities are allowed as a deduction from the estate and gift tax transfer system. Techniques are available that combine the tax advantages of charitable giving with the natural desire to provide for family members.