Business owners and partners face some unique inheritance planning challenges. The correct way to approach them will depend upon the circumstances, and this is why personalized attention is key. This is exactly what you get when you choose our firm, because we custom craft our solutions to suit each respective client.
One of the first things to take into consideration during the inheritance planning process is the vision that you have for your business after you step aside. Some businesses are completely owner driven, like a professional practice or a self-branded design company.
If you own this type of concern, you know that it will no longer generate profit after you move on. The only thing you have to think about is the timing and the liquidation of the business property.
In other instances, the situation can be a bit more complicated. To explain by way of example, let’s say that you own a restaurant, and it has become quite successful over the years. You have a son and a daughter, and your son has helped you run the business since he graduated from high school.
Your daughter had the same opportunity, but she decided to go to college to become a teacher. As the years pass, the restaurant continues to grow in popularity, and as a response, you expand the space.
When you are planning your estate, you know that you want to leave the restaurant to your son, and he definitely wants to keep running it. In fact, his son is now involved, and everyone is on the same page with regard to the business staying in the family over the long haul.
All of the above is well and good, but the business is by far your most valuable piece of property. If you simply hand it over to your son, where will this leave your daughter when your estate is being distributed? To address this situation, you could engage in the process of inheritance balancing.
This can involve the other property that you have being distributed in large part to your daughter. To make up for any difference, you could take out a life insurance policy on your life with your daughter as the beneficiary. In this manner, you could make sure that your children receive inheritances that are of equal value all things considered.
Another situation that can fit into this category is succession planning for small business partners. This is often accomplished through the utilization of a legal device called a buy-sell agreement, and this approach is also centered around the utilization of life insurance.
With the agreement called the cross purchase plan, the partners would come together to agree upon the value of a business share. Each partner would take out life insurance policies on the others that total the value of a share in the business.
When one partner dies, the proceeds from the insurance policies would be used to purchase the share that was owned by the deceased partner from his or her family. In this manner, the survivors would have liquidity to divide in accordance with the wishes of the decedent, and the business partners could go on as usual.
This approach can also be used for retirement planning purposes, giving each partner the right to sell their share to the other partners at an agreed-upon price.
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Our doors are wide open if you would like to discuss small business succession planning or any other estate planning situation with a licensed attorney. We would be more than glad to sit down with you, gain an understanding of your objectives, and help you put the ideal estate plan in place.
You can set the wheels in motion right now if you send us a message through our contact page, and we can be reached by phone at 513-721-1513.