Recently, a financial planner called to talk about a client that was discussing his ownership and management succession plans and the life insurance associated with his “planning.” The businessman owns 100% of his privately held company and is in his latter 50’s. His son works in the business. And there is life insurance on the father’s life.

The ownership succession plan under discussion was that they would work along for another decade or so and then, the son would buy the business from the father, essentially funding his retirement with a stream of purchase price payments. In the event of the father’s death, the plan was for the mother to have sufficient assets to live for the rest of her life.

From limited information, the father appears to have an inflated view of the worth of the business, although it is a nice and profitable one.

I asked what would happen now if the father died. Well, the company would purchase 100% of his stock and, presumably, the estate would then own the business. The mother would have liquidity, and the son would be in a position of having to purchase the company from her. That would not be a favorable result for the son and would create unplanned estate tax issues for the mother.

I suggested that the father might consider gifting or selling some stock, say 20%, to the son. At that point, there would be two owners. In the event of the father’s death, when the company acquired his remaining 80% of the shares, then, the value of the business would accrue to the son. The mother would have the insurance proceeds, and everyone would have what they are supposed to have.

We started to talk about what would happen if the son predeceased the father, and that was not a pleasant discussion.

The financial planner has not called back or put me in contact with either the father or the son. The succession plan we discussed, or the lack thereof, represents nothing but wishful thinking. And if you think about it, there’s not much good to wish for in the plan.