A succession is when a party, person or individual that is involved in a financial agreement is replaced by another. Succession occurs when the originating party becomes obsolete, incapacitated, retired or deceased. In the case of a family succession, the term refers to the transfer of assets, duties or obligations of one individual to a family heir.
A family succession occurs when an individual, due to illness, death, retirement or other reason, transfers his obligations or benefits on to a family member. This change in state may prevent the party from performing tasks and duties set out in the agreement or, in the case of death, unable to collect on the property in ownership. By replacing the former party, the family member assumes all responsibilities and benefits of the relationships and agreements previously established without any interruption of service.
Obviously, family successions are most common for family owned businesses but they are almost never easy because of the emotions and relationships involved. Successions are further complicated when one considers the three main areas that need to be accounted for in a succession plan – management, ownership and taxes. Accountants and lawyers are required to ensure all parties can realize long-term benefits from the succession plan. And in many cases, capital is required to complete a success plan which is often gained through mezzanine debt.