Why it’s important to include a succession plan in your business plan
What do you think of when someone mentions estate planning? For a lot of people, it is thought of as a way to secure your personal finances so your family isn’t left with an undesirable situation down the road. But what if your personal finances are directly associated with the business you own? One area that is often overlooked is incorporating a family business into an estate plan, since most business owners are focused on the day-to-day operations instead of the long-term plan. Estate planning for businesses is necessary and easy. All you need to get started is an experienced estate planning attorney, and basic knowledge surrounding these three aspects of estate planning for family businesses.
3 things to know about estate planning for your family business
1. Trust or Will: Which is your best option?
The first step in creating a successful estate plan for your business is deciding which estate planning vehicle is best suited for your needs. Quickbooks recommends creating a living trust designed to protect your business. You’ll have much more control of your assets, which will not be subject to probate throughout your life. Furthermore, when you create a living trust, you have total control over the decisions regarding to whom the ownership will be transferred, and when the transfer will take place.
2. Transferring Ownership
Creating an estate plan for your family business is the best way to pass it down to the next generation (a common wish for many people). Transferring ownership of your business is a common practice in estate planning, but there are some obstacles you want to make sure to cover in your plan. Fidelity suggests creating a clear succession plan by detailing specific instructions for everyone involved in the business. While this is a straightforward process for those who are the sole owner of a business, it becomes much more complex when there are multiple owners.
3. Minimizing Taxes
Another beneficial aspect of creating an estate plan for your family business is preventing your loved ones from being liable for expensive taxes that could ultimately force them to sell the business. If you die before creating an estate plan, your family will be forced to pay the full amount of the “death tax,” which generally ranges between 35 and 50 percent of the company’s value. Two ways to minimize these taxes are in the form of IRS tax breaks, specifically Section 303 and Section 6166. These tax breaks are extremely helpful for small business owners, as they will give your family more than the nine month period after your death to pay the death taxes.
When you secure the future of your business with an estate plan, you save your family from paying outrageous taxes should something unthinkable happen to you. Make sure all the boxes are checked – put it in writing. Contact the attorneys at Anselmo Lindberg & Associates and start planning your business’s estate.