Owning a small business requires specific estate planning.
You are like many Americans.
Over the years you have served your community by providing quality goods and services.
According to a recent Legal Scoops article titled “3 Ways Estate Planning is Used in Small Business,” your small business will likely die with you if you fail to include it in your estate planning.
What steps can you take to protect your small business?
Develop a Buy-Sell Agreement.
Many small businesses are owned and operated by friends and family.
This makes sense.
Friends and family tend to be those you know and trust the most.
Unfortunately, you leave your friends and family in a tough position and your business in jeopardy if you die without a buy-sell agreement.
What is a buy-sell agreement?
This protects the surviving owner or owners from being forced to work with the family of their decedent co-owner if they know nothing about the business.
The surviving owners can purchase this share of the business.
This allows the business to be managed by those who understand it.
It also allows the family to receive money from the sale of the business to use for their needs.
By the way, you should contact your life insurance professional without delay.
Because he or she has the perfect solution to “fund” the purchase of your interest without forcing the surviving co-owners to scrounge around for lost coins in your front lobby seat cushions to come up with the funding.
Implement a Succession Plan.
A succession plan is exactly what the name suggests.
It is a blueprint of how you would like the business to continue without you, to include who would take control.
You should begin early by developing new leadership to fill key roles.
When people know the plan for the future, you can minimize potential arguments when you are gone.
Eliminate Unnecessary Taxes.
With a small business, every penny counts.
You do not want to waste money on avoidable taxes.
What can you do to minimize your tax liability?
You may be able to gift business shares while you are alive.
You can redeem stocks at a lower rate.
You also can arrange to pay estate taxes in installments.
Because your business may make up the bulk of your estate, your family may have difficulty paying the 40 percent federal estate tax on your business.
You will need have a plan to pay for this tax.
Again, your life insurance professional has the perfect funding product to meet this potential cash call.
Navigating estate planning for a small business should not be attempted alone.
You will require the service of an experienced estate planning attorney in your state.
Reference: Legal Scoops (July 14, 2020) “3 Ways Estate Planning is Used in Small Business”