Estate Planning For Small Business Owners
Estate planning is important for everyone. It is what allows for an individual to make decisions regarding what should happen if they become incapacitated, and how their assets are to be distributed after they pass away. However, while for the average individual estate planning is important, for a small business owner, it can easily be argued it is an essential part of the responsibilities of owning and operating a business.
For the average person, estate planning encompasses deciding who makes your financial decisions if you are unable to do so, who
makes your medical decisions if you become incapacitated, and who receives your assets when you pass away. For a small business owner, estate planning is all of those things, plus what happens to the business after the owner passes. Without proper estate planning in place, when the owner of a small business dies, the heirs of the business owner will essentially be left upstream without a paddle.
Who takes over, how to continue operations, who receives an interest in the business, are just a couple of the questions that are an integral part of an estate planning plan for a small business owner. These decisions are details which are likely best made by the small business owner, and not left to the heirs to figure out. If the business owner chooses not to make these decisions, they are then leaving these important questions to an individual who becomes their personal representative, likely an heir, who potentially is completely uninterested in the small business and unaware of the complexities of it.
In order to avoid leaving a mess for your family members after you pass, it is advisable that small business owners draft a succession plan. A succession plan can take several different forms depending on the type of entity the business is. If the business entity is a sole proprietorship, a living trust may be sufficient. Living trusts are commonly used because they provide the business owner with the ability to provide protection from the federal estate tax and include a plan for who takes over control of the business interest. A company that has multiple owners will likely require a more complex plan, such as a buy-sell agreement. Buy-sell agreements, or buyout agreements, provide for the ability for the family of one of the owners to receive a “buy-out” from the other owners. This relinquishes the family members from having the responsibility of running the business but provides the family with compensation for their deceased relative’s interest in the company.
Another consideration that needs to be addressed by small business owners are estate taxes. Without proper planning, a small business owner could leave their family with a federal estate tax liability of between thirty-five (35%) and fifty (50%) percent. Each state differs in regards to the existence of state inheritance taxes, and this is something that needs to be addressed with an attorney who practices in your state. For a small business owner, planning for the future and taking advantage of current tax law could allow of the family to save significantly in tax liabilities.
Contact our experienced Arizona Estate Planning Attorneys at (480)947-4339.
As a small business owner, there are often not enough hours in a day to complete all the tasks that need to be completed. However, putting off drafting an estate plan could result in the family losing a majority or all of the assets earned by the business after the passing of the business owner. Therefore, an estate plan is essential for small business owners. Contact an Estate Planning professional such as the Estate Lawyer Pottstown PA locals trust.
Special thanks to our authors at Rick Lynn LLC for their insight into Estate Planning.