All business owners would like to live long enough to see their business become successful, but there are no guarantees. Using estate planning for a small business can help insure future success.
Legal Scoops’ recent article entitled “3 Ways Estate Planning is Used in Small Business” says that estate planning can work to keep your dream alive and help keep your business thriving after your death. Let’s look at some ways to estate planning for my small business.
- Protection from Unfamiliar Owners with Buy-Sell Agreements. Small businesses are frequently partnerships between family members or friends. However, one of the owners will die before the other, and if this occurs, the business may be in jeopardy if a buy-sell agreement isn’t in place. Buy-sell agreements can make certain that family members of the deceased don’t gain control of the business. It also automatically allows other owners to buy the owner’s share in the company.
- Implementation of a Succession Plan. A succession plan can identify and develop new leaders and key people to fill business objectives. Succession plans are implemented long before an owner’s death, so their wishes can be upheld. A succession plan can also decrease the chance of family arguments that come after a person’s death.
- Elimination of Unnecessary Taxes. A business that’s operational and successful will have assets and significant tax burdens for heirs. If a majority of your wealth is tied into a business, you must take action to help remove these unnecessary tax burdens from your business. Business owners can do one of the following:
- Gift family members shares in the business, while they’re still alive
- Redeem stocks at a lower tax rate than cash; or
- Estate taxes can pay estate taxes in installments.
When a business is illiquid, heirs may not be able to pay the 35% – 50% estate tax on the business.
To help you with your business succession planning, contact an experienced estate planning attorney to make certain that your family is financially sound after your death and that your legacy continues on with your family business.
Reference: Legal Scoops (July 14, 2020) “3 Ways Estate Planning is Used in Small Business”