Why is Estate Planning Important?
Owning and running a business is not easy. Almost all business owners get caught up in the quest for growth, never pausing to consider the possibility of, the aftermath of a sudden illness or an accident.
Every aspect of a business – including your estate – requires immaculate planning if you want them to run successfully.
An estate plan, regardless of its complexity, can be implemented at any point before the owner’s demise; the only requirement is that you should be competent according to the law.
In this article, we try and highlight some of the essential estate planning strategies regarding estate planning for business owners.
Steps in Estate Planning, for Small Business Owners
Having a will is perhaps the single most important factor in estate planning for business owners. A will permits the testator to plan the distribution of his assets, while also allowing him to determine the business’ successor.
It is vital for a business owner to have a will, as not having one can have disastrous implications for family members, workers, and the entire organization as a whole.
It’s important to remember, estate planning for small business owners is just as important for those with large companies, so make sure you get your will in place.
Business succession planning
A plan of succession makes sure that a business continues to operate as smoothly as possible, in case of an unfortunate event that renders the current owner incapable of operating it. What happens if one of the owners dies? What happens if you have a shock and can’t operate the business.
A comprehensive succession plan should cover things like the appointment of crucial decision-makers, a proper strategy to convey essential information, and how to make sure customers are not affected during these times.
A business succession plan is an important part of estate planning, even for small business owners, and allows them to let go of a significant amount of anxiety.
Estate planning with a revocable trust
Business estate planning could also involve the use of revocable trusts. These are trusts that allow the grantor to alter or even cancel the provisions.
For as long as the trust exists, the income which is generated is given to the grantor, and, once the grantor passes away, the property is handed over to the beneficiaries.
Such agreements aim to income to the grantor. The grantor is capable of altering the provisions of this trust while being aware of the fact that the property shall transfer upon his without the need for probate.
This is another useful strategy in estate planning for small business owners. These agreements help in business estate planning by providing a system to ensure some sort of liquidity for an estate. Additionally, buy-sell agreements also fix a specific value for the interest pertinent to the business, for estate tax reasons. Otherwise, upon the death of one owner, the remaining owner may have to deal with a spouse or adult child of the deceased owner.
Many businesses do not possess the kind of liquidity that is required for purchasing the shares of a person who has just died.
This liquidity can be provided through life insurance since it is usual for business owners to get policies which name their business partners as the beneficiaries.
The living members can benefit through proceeds that are tax-exempt, and can, therefore, be utilized in purchasing the shares of the owner, in case he or she is dead. Owing to its liquidity benefits, life insurance is an important clause in estate planning.
Tax burdens following the death of a business owner could also spell the demise of the business itself. Estate taxes can go up to as much as half the value of the entire estate. These taxes are normally supposed to be paid within nine months of the owner’s death.
To repay these taxes, the new owners often have to sell massive chunks of the estate, mainly due to poor liquidity. However, certain tax breaks provided by the IRS provide some protection to your estate.
For instance, keeping your shares in a trust can prove to be a very effective option, and is one recommended by many Las Vegas estate planning attorneys.
In conclusion, estate planning is crucial, and the aforementioned strategies can help you create that plan in a more effective manner.
For more than 30 years, Attorney Lee A. Drizin has practiced in the areas of estate planning, probate, trusts, guardianship and real estate matters representing clients throughout the state of Nevada.
Drizin Law is providing this information for educational purposes only. It should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. This information is based on general principles of Nevada law at the time it was created and you should be aware laws frequently change. Moreover, the laws affecting you may differ depending on the circumstances. You should consult with a qualified attorney in your own state or jurisdiction concerning your particular situation. Review of this information does not create an attorney-client relationship.