Planning for the transfer or liquidation of your business when you are ready to retire or when you die is just as important as the planning you did in starting up your small business. Here are some tips from a Creative Business Lawyer™ on how to use estate planning strategies to transfer your business interests:
Business Structure – How your business is set up – as a partnership, a sole proprietorship, an LLC, a C Corp or an S Corp – can have a great impact on estate taxes. If you want to preserve your business for future generations, a family limited partnership can allow you to transfer ownership of the business to children as limited partners and enable you to maintain control over the business. Setting a business up as a corporation allows for the issuance of stock to the owner and common stock to children utilizing the IRS’ estate freeze rule, which decreases tax liability.
Trusts – Business owners can use trusts to remove the value of the business from their estates and pass business interests on to the next generation while maintaining some control over the assets.
Buy-Sell Agreements – If you plan to transfer a business to a partner or partners upon your retirement or death, a buy-sell agreement is a necessity. Having the agreement specify the transference of sale proceeds to a trust for your beneficiaries keeps the value of your business out of your estate, so your heirs will not be hit with a hefty estate tax bill.
Estate planning for businesses can be complicated, so small business owners should consult with a Creative Business Lawyer™ to ensure the right strategies are put in place for your individual circumstances.
If you’re a small or mid-size business owner, contact a Creative Business Lawyer® today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.