Whenever you need to leave your pet at home for a weekend whilst you spend time away, you wouldn’t leave them unattended or not looked after. You’ll put a plan in place to ensure that they’re well looked after and fed regularly for when you’re away. The same would also apply if you were to step away from your business temporarily, or even permanently.
Your eventual passing isn’t something you’d want to think about as a business owner, but it is an eventuality. If there’s no plan in place for when this occurs, it’ll be the heirs that will have no direction of how the assets will be distributed or what the next steps will need to be. You’re probably managing the business quite well at the moment, but what about when you’re not around? Ideally, you’d want it to continue its success even after you leave. If you want this to happen, put a plan in place to prevent a messy affair occurring when you pass away and have active communication with your family and business partners so they’re in the know about your future plans.
Here are some estate planning approaches that can help you as a small business owner.
Keep Taxes To A Minimum
Estate taxes involves the principle of owing death tax to the IRS. You’d want to keep this to a minimum considering the business value you can owe in taxes can range anything from 35 to 50%. The timeline to do this in is nine months, which doesn’t leave a lot of time to make arrangements effectively and can sometimes leave businesses well undervalued in the selling process.
Estate planning can prevent this from happening. You can do this in the form of tax breaks which can reduce the burden of dealing with small businesses after a death. There are more details of how you can achieve this here.
A buy-sell agreement is useful if you have shareholders within the business and helps ease the process of distributing your assets between existing parties who run the business. It’s essentially a contract that’s agreed between partners or shareholders that allows them to buy out your share of the business. Alternatively, you can also outline/dismiss the roles of certain parties in the business or whether you wish the shares to be sold to an heir. Considering the prices of the shares have already been agreed with the partners, the price would be considered fair.
In some cases, business assets may not necessarily be liquid assets which means partners won’t receive capital to help buy out the shares of the business owner. This is where life insurance can become useful. The process would be for each business partner to take out a life insurance policy and add the other parties in the business as beneficiaries. This way, if a business owner was to leave the proceeds would be tax-free for the owners to purchase.
Considering Heirs In A Family Run Business
It’s often for business owners to pass down their involvement to family members who are part of the business already. You may have more than one child which isn’t associated with the business but you may consider that they take a share from the business. These are decisions that need to be made as they’re critical to business needs. By arranging a proper estate plan, it allows a smooth transition for when someone passes away.
As part of your estate planning set up, a will is one of the most important documents that you’ll require as part of this process. Without a will, you’re leaving your capital out of the hands of people you trust and assets won’t necessarily be distributed the way you want them to. To ensure that your capital is protected, speak to contentious probate solicitors so they can ensure that no issues when the time arrives where you step away from the business.