
NOVA Estate Lawyers – Leesburg
When you own a business, a large part of your family’s income and wealth is most likely tied up in the business. Therefore, you need to plan what will happen to that business following your becoming incapacitated or your death. This type of estate planning is often called succession planning.
You may want to keep the business running within your family. You may want to sell it at a fair price and split the profits, either before or after you pass away. Or you may want to ensure that the business passes along to existing co-owners. No matter which outcome you choose, planning ahead will help your business survive and aid in preventing large or unexpected tax liabilities.
Without proper planning, even if the business should die along with the owner, estate taxes can still be owed. This type of tax, known as the IRS’ death tax, can range from 35% to 50% of the business value, and is due within nine months of the death. Lack of liquid funds can result in the sale of a business at far below its actual value.
Your estate plan for business succession takes careful preparation, especially if it is owner-dependent, as with many professional practices. You must consider the systematic transfer of management, assets and ownership, and answer questions like “Who will own the business.”
If the business has co-owners, partners or shareholders, you might want to establish an agreement that the remaining owners automatically purchase the shared interest in order to avoid family members from taking interest. It can also establish a sale price and allow or disallow partners to purchase your share. This is known as a buy-sell agreement. Funds to purchase shares of an existing business often come from life insurance, and an irrevocable life insurance trust (ILIT) can be created to provide funding for the buy-sell agreement.
For a family-owned business, decisions as to which family members will inherit and run the business need to be made, and questions like “If two children will be involved in the business and one will not, should the assets be divided equally?” should be answered.
One of the main reasons for creating a succession plan for your business is to avoid probate and minimize estate tax burdens. You may want to establish a trust that transfers your business assets to your family members or partners while still providing you with an income. This is known as a grantor-retained annuity trust (GRAT) or grantor-retained unitrust (GRUT). Or you could establish a family limited partnership to hold the business assets. Because the rules for establishing trusts are complex, it is always best to consult with your attorney.
Contact Your Estate Planning Attorney
Creating any estate plan takes time, and it is never too soon to set a succession plan into place, especially since death could happen unexpectedly. That is why you need to talk to an estate planning attorney like Patricia Tichenor or Camellia Safi at The Law Office of Patricia E. Tichenor, P.L.L.C. Located in Reston, and serving clients throughout Northern Virginia, we can help you create an estate plan to ensure proper succession of your business and your assets. Contact us today.