Succession planning fails most often for reasons of governance rather than of tax.

Separate the roles. Ownership, governance and management are three different things, and treating them as one is the source of most family business conflict. A child may own without managing, or manage without controlling.

Equal versus equitable. Dividing ownership equally among children where one runs the business and others do not creates a permanent structural conflict — the operator wants reinvestment and compensation, the others want distributions. Alternatives include non-voting equity for non-operators, buying out non-operators with other assets, or a defined redemption program.

Governance mechanisms. A board with at least one independent member, a shareholders agreement, a defined distribution policy, and an employment policy setting out qualifications for family members to work in the business.

Buy-sell provisions covering death, disability, divorce, bankruptcy and departure, with a valuation methodology and funding, commonly insurance for the death trigger.

Transition timetable. Defined roles, dates and criteria, with the predecessor’s continuing role stated. Ambiguity here is the most common cause of failure.

Communication. The plan explained to the family before it is implemented. Surprises discovered after a death produce litigation regardless of how well the documents are drafted.