Is Your Small Business Protected in Your Estate Plan?
Small businesses were finally making a comeback in the United States – at least before the Covid-19 pandemic hit. If you are among the millions of Americans who owns a small business, it is essential that you protect your investment by incorporating a business succession planning component in your estate plan. Doing so is the only way to ensure that you know who will take over control of the business upon your retirement, disability, or death and making sure that your loved ones benefit from the financial success of the business. The Coral Gables business succession planning attorneys at Stivers Law explain the need for business succession planning within your estate plan to protect your small business.
The American Dream – Owning a Small Business
Getting a small business off the ground and to the point where it is making a profit is no small feat. If you have done so, now is the time to ensure the continued survival and/or success of your family business because there is an endless list of things that could threaten your business, such as:
- An accident that prevents you from running the business. Who will take over the immediate day to day operation of your business? Does that person have the legal authority necessary to run the business? Will your employees, business associates, and family members accept your successor’s authority?
- Your permanent disability or incapacity. If you become permanently disabled or incapacitated who will take over your business? Of equal importance, will your family continue to benefit from the business’s success in your absence?
- Loss of assets during probate. What will happen to the value of your interest in the business if it is part of the probate of your estate? What if the business must be sold? What will the tax implications be for your business? Does the business have sufficient liquid assets to cover any tax debt that might be owed when you die? How will your family get by financially during probate?
- Your retirement or death. If you plan to pass the business down to the next generation, have you prepared your successor to take over? Have you set up the proper legal structure for the business to facilitate the transfer to the next generation?
Business Succession Planning Is the Key to Protecting Your Small Business
Business succession planning uses legal tools and strategies to plan for all the ways in which your business could be at risk. For example, if you plan to pass down your interest in the business to your children, you may want to create a Family Limited Partnership (FLP). With an FPL you maintain majority control and day to day management of the company for as long as you wish; however, your successor can also begin to learn the business while you are still around to provide guidance and advice. You are also able to slowly transfer your legal interest in the business to your child(ren) over time which may result in tax advantages to you and/or the business during your lifetime.
If, on the other hand, you have already established that none of your children wish to take over the business, entering into a “buy-sell” agreement ensures that your loved ones will benefit from the true value of your interest in the business. A buy-sell agreement works best when you have a partner; however, you can create one with an uninterested third party as well. In short, a buy-sell agreement allows you to determine ahead of time what your interest in the business is worth or, in the alternative, provides an agreed upon method of valuing the business when the time comes. Your partner(s) agrees to purchase your interest in the business should certain events occur. This ensures the continuation of the business and a fair price for the sale of your interest in the business, the proceeds of which will then become part of your estate or will go directly to your loved ones.
Contact Coral Gables Business Succession Planning Attorneys
For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about protecting your small business with a business succession plan. contact the experienced Coral Gables business succession planning attorneys at Stivers Law by calling (305) 456-3255 to schedule an appointment.