Estate Planning for Small and Medium-Sized Business Owners

We are all aware of estate planning, and the need for estate planning. This is especially true if we have minor children. However, estate planning is important for everyone if you own any assets, have children, or want to have control over whom your property will be distributed to upon your death. If you do not have a plan, your property may not go to whom you might expect (and in some circumstances could end up with the State!)

When you own a small to medium-sized business, it is even more important to have your estate planning in place.

Many people think of estate planning as having a living trust, a will, powers of attorney, and living will. However, when you own a business, there are a number of other important items that you must approach and ensure is planned out for your children and loved ones.


  1. Your Business is an Asset


You may not think so, or even realize it, but your business is an asset. It is also an asset that will need to have its value determined if you do no planning prior to your death in how that asset will transfer to your business partners, to a family member, or to an outsider.


Let’s say you own a business with your business partner and you engaged in no estate planning, no business planning, and never saw the purpose in engaging general business counsel to help and advise you with your business. Then, let’s say you die owning a 50% ownership in the business. Your loved ones take your Will to the attorney to have your estate probated. The attorney informs you that there will need to be a business valuation of the business. As it turns out, the business is worth $4 million.


The surviving business partner believes the business is 100% his business now. However, your family members believe, according to the will, that 50% transferred to the spouse and surviving children.


Because you didn’t plan, your former business partner is forced to purchase the 50% ownership in the business worth $2 million from the estate.


Proper Business succession planning and estate planning could have planned for and prevented this scenario.


  1. How to Plan the Succession of Your Business


There are a number of ways to plan the proper succession of your business to the next generation. Perhaps you want to sell the business and retire to an outside buyer, maybe you want to sell your business to the employees in the form of a stock ownership program, or maybe you want to sell your share back to the existing business partners when you retire or pass away. No matter what you have in mind, you need to speak with a good estate and business attorney who would discuss the issues involved and help you accomplish your goals.


  1. Income Exit Strategies from the Business


No matter how and in what manner you wish to step away from your business, choosing the proper manner can have lasting tax consequences. There can be substantial tax consequences depending upon your decision. For instance, whether you choose to complete an asset sale, a stock sale, an employee stock ownership plan (ESOP), or an installment sale with an owner-financed note, each decision will have a different tax consequence. It is important to discuss these issues with a business attorney who will also advise you on the tax consequences to develop a plan for the most tax advantage sale scenario.


  1. Special Considerations When It’s a Family Owned Business


There are especially important considerations when it’s a family owned business. First, it can be sometimes a more delicate situation when deciding how to transition your business to the next generation. In addition, to navigating often complex family dynamics, you must consider the long-term future of the business with proper business training for the next generation. Second generation businesses have an incredibly high failure rate, and third generation businesses are even higher. It is not just the legal and tax matters that a business attorney should help you with, but also valuable business advice and consulting on how to develop a business that will continue for generations to come, as well as grow to the next level.


If you are a Tennessee business owner and you know that you have put of estate planning long enough, please give us a call at (615) 472-2482 or fill out the contact form to the left of your screen to schedule an initial strategy session to discuss how to protect your business and how to protect your family.

Daniel A. Perry
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Focused on helping seniors, individuals with disabilities and small business owners make informed decisions.
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