Many articles have been written about the importance and benefits of buy-sell agreements, deferred compensation agreements and life insurance in family business succession planning. While these may prove valuable in planning for the transition of a family business from one generation to another, none will come into play until the owner is prepared to face reality.

Once the business owner faces reality, then the owner's advisers can calculate the costs of reality and then plan to reduce the costs of reality. Let us examine what is meant by facing reality.Basically, the owner must be made to face the reality that his or her current stage of succession planning, or lack thereof, is actually a poor plan with predictable and negative consequences for the owner's family. If the owner has done no planning, the costs of failing to face the facts are easily seen.

Calculating the costs of reality consists of answering questions designed to focus on the probable consequences of lack of estate planning. Examples:

- When you want to retire, is your family capable of running your business?

- When you retire, will your partners voluntarily pay you the value of your interest in the business?

- If you die prematurely, will your business have the necessary capital to survive?

- If you die suddenly, will your partners voluntarily pay your heirs the value of your interest in the business?

If the owner's answer to all of the questions is "no," he or she will realize that both the heirs and the family business will be in jeopardy if nothing is done. A final question:

- When you die, will your heirs have to sell some or all of the family business just to pay the estate taxes? If the answer is "yes," the owner will realize the need to act.

Only then will the owner be able to plan to reduce the costs of reality.

For example, a buy-sell agreement can ensure that the owner or the owner's heirs are paid the value of the owner's interest.

Life insurance can be purchased or other arrangements can be made to fund the payments required at the owner's retirement or death. Gift planning can reduce, or eliminate, estate taxes otherwise due. However, none of these useful planning techniques can be truly effective until the owner faces reality.

In planning your estate, the best course is to seek the assistance of an attorney specializing in estate planning.