If you own a business, and want to pass it on to your children or other family members, there are many things to think about. Without proper estate planning, the likelihood that your business will successfully survive after you’ve retired or are gone is significantly reduced. Consider these important points:
1. When a business is inherited, the heirs must (depending on the value of your estate) pay federal and state transfer taxes. These are taxes imposed on the transfer of property. These taxes can be so substantial, and can result in such a significant cash drain, that the business cannot survive. However, there are estate planning and business succession planning options that can help you reduce the tax burden. For example, there are various approaches to transferring some or all of the equity in your business to your heirs while you are still alive. Transferring current equity (and its future appreciation) can reduce the future tax burden on the business.
2. Maintaining family harmony among your heirs may not occur without advance planning. Some in your family may want to work in the business while others may not. That may raise issues regarding profit sharing and salaries, who has a say in decision making, and what are acceptable “perks” for those in the business. These are just a few examples of potential pitfalls that may be averted with proper estate planning. One approach is to structure your estate plan and business succession plan so that heirs working in the business own and control the business. Other assets can be set aside for the family members not in the business to offset the financial advantages bequeathed to those in the business.
3. Before leaving your business to your heirs, make sure key documents are in order. Among others, these include a written buy-sell agreement that is properly coordinated with your estate planning documents.
If you’ve built up a business and want it to continue when you’ve retired or passed away, business succession planning is critical.
It helps ensure that the fruits of your efforts land in the right hands, and that those assets are not depleted due to taxes or family infighting. It can keep your legacy going. But, you need the right people to assist you in developing your succession plan.
Getting Legal Help
Attorney Elga Goodman is an experienced estate and business succession planning attorney who has worked with many individuals and families on business succession plans. She will work with you to create a strategic plan for the family business that is designed to address the financial and relational issues pertaining to you and your family. Contact us today at 973-841-5111.
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