Dealing with Toxic Succession Issues
Properly valuing a company at the death of a business owner requires analyzing potential environmental cleanup liabilities associated with any contaminated real property that may be owned by the company. Unfortunately, accountants and business valuation professionals often fail to account for these environmental liabilities in succession-related business valuation situations, such as Buy-sell agreements. This can result in over-valuing the business, and can leave surviving business partners “holding the bag” regarding environmental cleanup costs inadvertently passed to them (toxic succession) by the deceased business partner.
The need to incorporate these potential environmental cleanup cost liabilities into the valuation process becomes even more critical when you consider that environmental contamination of real property is widespread. It can occur from any of numerous commercial, industrial or agricultural sources, including gasoline service stations, dry cleaners, chemical or pesticide storage, and manufacturing operations. Contamination can impact both soil and groundwater, and can lead to liability for potentially catastrophic cleanup costs associated with the contamination.
The harsh risks of toxic succession can often be mitigated by considering potential environmental contamination liabilities in business valuation efforts. By including liabilities from environmental contamination in the formulas used to value businesses during toxic succession scenarios, business valuation experts can help protect their clients – and themselves – from the potentially serious consequences often associated with the unintended transfer of environmental cleanup liability at the death of a business owner.
Resources:
•Campaign 5000: Toxic Succession Whitepaper
•Planned Giving Today article by Kevin Daehnke
•Contaminated Property: Proactive Planning Strategies to Maximize Estate Value and Avoid Draconian Results
•Environmental Cleanup Costs: Professional Negligence for Failure to Warn Successors and Beneficiaries
