Everyone should explore their options before they make any final estate planning decisions, because there are many different ways to proceed. Some situations are more complicated than others of course, and when it comes to estate planning for small business owners, there can be some inherent challenges.
This being stated, people sometimes come to us with situations that they think are going to be very hard to figure out. In fact, there are usually tried-and-true inheritance planning solutions that are relatively simple and straightforward. With this in mind, we will look at a couple of strategies that can be implemented by small business owners when certain circumstances exist.
Inheritance Balancing for Family Businesses
The best way to explain this concept is through the utilization of a simple example. Let’s say you own a very successful restaurant, and you have a daughter and a son. Your daughter went to a culinary academy, and she followed up with a degree in restaurant management.
She worked in the restaurant throughout her middle school and high school years, because she always had an interest in the business. Your daughter also helped out at the restaurant during her breaks from college.
As soon as she graduated, she started working beside you full time helping to run the family business.
Your son was heavily into athletics throughout his school career, and he went to college on a football scholarship. Subsequently, he went into coaching and teaching, and this is his passion.
Both of your children are a source of pride for you, and you want to leave them equal inheritances. Of course, you want to bequeath the restaurant to your daughter, and it is by far your most valuable asset.
It would be possible to leave your son a partial ownership share, but he really doesn’t want to be involved, and it could muddy the waters in other ways. To resolve the situation to the satisfaction of everyone concerned, you could balance inheritances through the purchase of life insurance.
You could make your son the beneficiary, and after your passing, he would receive an amount that is equal to the estimated value of the business.
The other estate planning solution we will look at here is the buy-sell agreement, and will use another hypothetical scenario as a means of explanation. Let’s say that you own a business with one partner, and each of you would like to continue running the business if you survive the other partner.
To account for this situation, you could each take out a life insurance policy on the other person that is equal to an ownership share in the business. For the purposes of this example, we will say that your partner dies first. You would collect the life insurance proceeds and use them to buy his share of the business from his family.
They would have liquidity to spread among multiple different heirs, and they would not have to be concerned about what they should do with their share in the business. You would be able to continue running the business that you helped to establish for as long as you choose to do so.
Schedule a Consultation!
We are here to help if you would like to discuss your estate planning objectives with a licensed attorney, whether you are business person or not. There is an ideal approach for everyone depending on the circumstances, and this is why personal attention is key.
You can set the wheels in motion right now if you give us a call at 631-265-0599. There is also a contact form on this website that you can use if you would like to send us a message.
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