For the entrepreneurial-minded person, nothing beats the excitement of having a vision for a business, and then making that dream come true. However, have you ever wondered what will happen to that business after you are gone? This is where proper estate planning comes into play.
A comprehensive estate plan, says Bakersfield.com, in the recent article “Estate planning tips for small business owners,” provides a plan that can protect your life’s work.
It makes sense. You’ve likely spent decades building your business throughout your working life. You’re proud of what you have accomplished, and you should be. You should then protect it with a well-thought-out plan. Our estate planning attorneys can help you design a two-pronged plan for your business and your personal life. For business owners, these two are intertwined.
Can you avoid taxes? Reviewing your personal and business assets, as part of an estate plan, is the best way to minimize the tax exposure of your estate and facilitate an organized sale or succession plan for your business. You can’t completely avoid taxes, but good planning will help them from being excessive.
There are a number of IRS sections that can help, and our estate planning attorneys know them. For example, Section 6166 gives your loved ones more time to pay the tax, by paying in ten annual installments. Another Section, 303, lets your family redeem stock with few tax penalties. Talk with our attorneys and CPA to find out if your business is eligible for either of these strategies. Create a plan and talk about it in detail with survivors to help them navigate the transition.
Do you have a buy-sell agreement in place? This is critical, if more than one person owns the business. The buy-sell agreement dictates how the partnership or LLC is distributed upon the death or incapacity of one of the owners. Without one, family members may be stuck owning a company they don’t want or don’t know anything about. Alternatively, your former partners may find themselves partnered with people with whom they never intended to go into business.
The buy-sell agreement creates a plan so, when an owner passes, the shares of the company must be bought out by the other owners at a fair market price. The agreement can even establish a sale price, so family members will know exactly what they can expect to receive from the sale. In addition, a buy-sell agreement can be used to block certain individuals from taking a role in the business. For many family businesses, that’s enough of a reason to make sure to have a buy-sell agreement.
How are life insurance policies used by small business owners? Maybe you want the business to die with you. Some small businesses provide a stable income for the owner, but there’s no plan for the business to be passed to another family member or to survive the passing of the owner. If that is your situation, and you want your family to have income, you’ll need a life insurance policy.
A life insurance policy can also be used to help partners with the capital they’ll need to purchase your shares, if that is how your buy-sell agreement has been set up.
As a small business owner and a family breadwinner, you want to be sure your family and your business are prepared for your passing. Our estate planning attorneys help to make sure both are protected, in the event of your passing.
If you’re ready to start a discussion about your business and creating a comprehensive estate plan that protects your life’s work, request a consultation with one of our experienced estate planning attorneys. This consultation is the first step in making sure your wishes are carried out.