When people think of estate planning (do people who aren’t lawyers think about estate planning?), they generally only consider it in an individual sense. That’s an important area of estate law, but it is not the only area, by far. Estate planning for small businesses is vital to ensuring the long-term success of your business. You’ve worked hard for what you have, and you want it to last.
Here are some issues affecting small businesses that make it vital for small businesses to engage with an estate planning attorney:
It’s nicknamed the death tax, but the IRS pretends that nickname doesn’t exist and instead calls it the estate tax. The death tax still exists, and it will affect your small business if the business is part of your estate and meets the financial threshold. The death tax is a tax on the decedent’s (dead person’s) right to transfer their property after death.
That’s right, even your exit from this earth is taxed. Your small business could be affected by this tax, losing some of its value. However, there are exclusions you can claim or potential deferments of which your heirs can take advantage of. Estate planning will help minimize the tax burden that your small business faces when you pass on.
Trusts, Wills, and Avoiding Probate
Speaking of transferring property, do you know what will happen to your company if you die? Estate planning for small business includes plans for what will come after the death of the owner. A healthy estate plan will allow your business to avoid probate or being picked apart by creditors. That way, your company’s financial future is far more secure.
If you aren’t the only owner of your business, you should look into a buy-sell agreement, which will likely be necessary in this situation. Simply put, this type of agreement mandates that the shareholders, upon your death or some other condition, sell their stake at fair market value to others.
Family-Run Business Issues
Family-run companies might run into different legal issues than other small businesses, particularly when it comes to succession plans. Family businesses keep things in the family, but there also tends to be an informal structure and culture. There might be pressure to hire other family members, a lack of training, high turnover for non-familiar employees, and other issues that come from keeping a business in the family.
This isn’t to say that family-run businesses aren’t awesome—they are. But, they do experience their fair share of potential pitfalls specific to such a personalized enterprise. Estate planning, especially for family businesses who have an informal structure, will provide a firm plan and minimize disputes that could otherwise be the downfall of your small business.
Life insurance is great for a small business owner because, if the owner dies, the business might not provide enough money for the owner’s family to live on. Life insurance is a big-picture policy. Term life insurance will help you provide for your family after you pass on.
Sole Proprietorship Concerns
Succession plans are especially important for a sole proprietorship. If you are a sole proprietor, estate planning will help you tell your heirs either how to run your business when you’re gone or what to do with it when you pass away (sell, transfer, etc.). Estate planning will help you lay out that information for your heirs and make the succession and transfer of the company as smooth as possible.
Small business estate planning is no small matter. Whether you own a sole proprietorship or an LLC, there are a lot of ways that estate planning can provide for your business’s future. There is no reason a good business with a solid financial foundation should be brought down by an issue estate planning could fix. Contact an estate planning attorney today.