If you are a business owner, it is important that you have a carefully crafted estate plan for your business. Since we can’t predict the future, you want to know that that the business you’ve invested years of time, work and money into will be taken care of.
An estate plan for a business ensures that in the event of your death, all affairs pertaining to your business will be handled according to your predetermined plan. Many smart business owners rely on the expertise and knowledge of attorneys when dealing with estate planning, wills, and trusts to safeguard their companies from financial loss and even potential sale.
You may want to pass your business down to your children, spouse or other family members or you may want to sell it. Whatever you wish to do, having an estate plan in place can help avoid large tax implications and unanswered questions as to who should take over.
Why you need an estate plan for your business
Here are a few additional reasons that make the case for having an estate plan:
- Estate planning helps prevent/minimize taxes
In the event of a business owner’s death, estate taxes or death taxes are due on the estate. Therefore, estate tax is an important factor to be considered. When facing significant estate taxes, many businesses have to be sold well below value as their assets are typically not liquid.
With estate planning, you have multiple options to avoid or minimize such taxes. One way is to establish a GRAT or Grantor Retained Annuity Trust and pass on your estate to your children. Another way is to start gifting shares of the business to your children while you are alive to enable the business to be discounted on your death.
- Estate planning guarantees your business won’t be closed
You can be assured that the business you’ve worked so hard for will continue to operate, even after your passing. With proper estate planning, the transition process can be a smooth one. Once you’ve laid out your exact wishes, your management team or family have a solid road map to follow.
- Estate planning ensures your business falls into the right hands
With an estate plan, you can make sure that your business is taken care of by the most qualified people who have the best interests at heart. You can also opt for a buy-sell agreement. In simple terms, it means that if you have a business partner(s) or co-worker(s), then at your passing, your interest is automatically purchased by them. This is important because it makes sure that your family members, who may not have anything to do with your business, do not become owners unintentionally.
What can happen if you don’t have a succession plan
By now, it is evident that a succession plan, also known as a transition plan, is necessary for your business. If you don’t have one ready at the time of your passing, your business’s future may be at tremendous risk. With out a proper estate plan, businesses also can go through probate. This can be expensive and time consuming. In order to probate a business, a certified business valuation is needed. This can cost upwards of $6000.00. If a business is part of a properly drafted estate plan, probate of the business can be avoided entirely.
The experienced team at Dunlap Bennett & Ludwig can help you create an estate plan tailored to the unique needs of your business.
Contact us today to learn how we can help.
Posted in: Estate Planning