Business Succession Planning Flashcards
7 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Business Succession Planning flashcards as text
A business owner wants to transfer controlling interest but retain decision-making power during a transition period. Which structure BEST accomplishes this?
Answer: Transfer of non-voting stock while retaining voting stock
By transferring non-voting shares while retaining voting shares, the owner passes economic value and future appreciation to heirs while maintaining operational control.
Which of the following triggering events is LEAST commonly included in a standard buy-sell agreement?
Answer: Temporary illness of an owner lasting fewer than 30 days
Buy-sell agreements are triggered by permanent or long-term events like death, disability, retirement, or voluntary sale — not brief, temporary illnesses.
When calculating the gift tax value of a transferred LLC interest, which two discounts are MOST frequently combined to reduce the reported value?
Answer: Minority interest discount and lack-of-marketability discount
A minority interest discount (lack of control) combined with a lack-of-marketability discount (difficulty selling) are the two most commonly stacked discounts in closely held entity transfers.
A Certified Estate Advisor assisting with business succession should advise that a buy-sell agreement funded with life insurance be reviewed at minimum:
Answer: Every 2-3 years and upon significant changes in business value or ownership
Regular reviews every 2-3 years and after any material change ensure the agreement price and insurance coverage remain aligned with the current business value.
In a family business succession plan, the 'equal vs. equitable' challenge refers to:
Answer: Balancing the desire to treat all children fairly while ensuring business-active children receive operational control
Equal treatment divides everything identically, while equitable treatment considers each child's role, contribution, and need — often requiring life insurance or other assets to compensate non-active heirs.
Which professional is BEST qualified to provide a formal, defensible business valuation for estate and gift tax reporting purposes?
Answer: A Certified Business Appraiser (CBA) or Accredited in Business Valuation (ABV) designee
A credentialed business appraiser such as a CBA or ABV designee provides valuations that meet IRS standards and can withstand audit scrutiny for gift and estate tax purposes.
Which of the following best describes the purpose of a 'succession readiness assessment' in business succession planning?
Answer: Evaluating whether the business, leadership pipeline, and legal documents are prepared for an ownership transition
A succession readiness assessment identifies gaps in management depth, legal agreements, financial liquidity, and owner readiness needed for a smooth transition.