To talk about succession planning is to embark on a long journey; the limited space of this column is simply not enough to cover it fully. Thus, I will focus on the most significant highlights applicable to many family corporations.

The tendency among most family businesses run by Filipinos is to ignore or take succession planning for granted—until a triggering event occurs and they are suddenly forced to confront complex succession issues.

Recently, a proposal was filed in Congress not only to extend the estate tax amnesty to Dec. 31, 2028, but to entirely abolish the estate tax altogether. This is through House Bill No. 6553, proposed by Albay Representative Raymond Adrian Salceda. Under this proposed bill, there will be no estate tax imposed at the time of death. Instead, the tax will only apply when the property is sold by the heirs, collected through the usual capital gains tax.

But what is the connection between this proposed bill and succession planning? Traditionally, life insurance is used to cover family members or individuals who hold substantial properties under their names. The proceeds from these policies provide the necessary liquid funds not only to buy out a decedent’s shares in a company but also to settle estate taxes without forcing the heirs to liquidate core assets. Of course, you can choose to forego insurance if the estate already has sufficient liquidity, or if the family intends to sell specific properties to pay for the estate taxes and other transfer-related expenses.

If this bill passes, life insurance may no longer be necessary for tax purposes—leaving perhaps only a smaller policy needed to fund the buyout of a deceased member’s shares in the company.

To manage these assets, a Special Purpose Vehicle (SPV) is usually created to hold specific properties, investments, or business interests. The ultimate goal of an SPV is to ensure continuity of operations by preserving wealth, facilitating the seamless transfer of ownership, and minimizing conflicts or disputes among heirs.

Common types of SPVs used in the Philippines include family holding companies, trusts (though less popular here than in Western countries), private family foundations for those with substantial wealth and philanthropic goals, real estate holding companies, and ordinary family-owned corporations governed by carefully drafted shareholders’ agreements and insurance-backed buy-sell agreements.

However, a holding company may not be necessary if there is only a single operating corporation. Furthermore, if there are only a few heirs and the investment portfolio isn’t sprawling, a simple structure—like an ordinary family corporation—will suffice. The main objective isn’t merely having a holding company, but establishing a robust succession plan.

A good succession plan should be reinforced by legal and structural tools. These include a last will and testament, as well as a family constitution that outlines family values and governance rules. The constitution can also define management roles—determining whether family members will run the business or if management will be entirely outsourced to external professionals—and, crucially, map out conflict resolution mechanisms.

To decide whether a holding company is right for you, consider these criteria: Do you operate multiple businesses? Do you hold a large number of properties or a massive investment portfolio? Is your ownership structure complex, involving several generations? If you answered yes, a holding company is highly effective.

Additionally, a shareholders’ agreement must be in place to outline voting rights, transfer restrictions, and exit provisions. Alongside this, a buy-sell agreement helps avert messy disputes, particularly with the immediate heirs of a deceased sibling (such as their spouses and children).

Buy-sell structures typically take the form of cross-purchase agreements or entity-purchase agreements, often funded through life insurance. A cross-purchase agreement details the exact pricing mechanisms for an heir’s shares upon their passing. If the shares are not publicly traded, this can be based on the book value of the assets or whatever valuation the family mutually agrees upon. Alternatively, an entity or business purchase agreement allows the company itself to buy back the shares, which can similarly be funded by insurance to smooth out the transfer.

We often see families on social media at odds with one another over inheritance issues. While we cannot know if proper succession planning was established in those specific cases, we do know that proactive planning goes a long way in preventing such public conflicts.

Whether you are still in your youth or navigating your twilight years, always remember: “Succession planning is not preparing for death; it is preparing for continuity.”