Owning a small business is often part of living the American dream and comes with a sense of pride and accomplishment. As a business owner, however, the need for comprehensive and inclusive estate planning is amplified. Without a business succession planning component in your estate plan, all the hard work and sacrifice on your part to get your business off the ground may be at risk if something happens to you. The Long Island business succession planning attorneys at Eghrari Wealth Training Firm explain how to protect your business by incorporating business succession planning into your estate plan.
Protecting Your Investment
While operating a business can be both financially and emotionally rewarding, it can also be stressful and exhausting at times. As a small business owner, you have undoubtedly faced your fair share of struggles and challenges. One of the most important of those challenges is to prepare your business for the possibility of your own incapacity or death. Failing to do so could have disastrous consequences for both your business and your loved ones.
One of the most common dilemmas small businesses face is the tendency for a small business to lack sufficient liquidity. Operating a cash poor business may not be problematic while you are alive; however, it can be a problem during the probate of your estate because your estate is subject to federal gift and estate taxes. Any taxes levied on the estate are calculated based on the total value of the decedent’s estate assets at the time of death. If your estate does owe gift and estate taxes, but lacks sufficient liquid assets to satisfy the debt, your Executor could be forced to sell vital business assets to raise the necessary cash. That, in turn, could threaten the future of your business and leave loved ones without the financial security that you thought you were leaving for them.
Your own incapacity could also create a huge problem for your business if you failed to plan for the possibility. Who would take over control of the business? Does your designated successor have the necessary legal authority to run the business in your absence? These are the types of questions that should be answered in a business succession plan to ensure that your business will continue to function successfully in your absence should the need arise.
Business Succession Planning
The key to protecting your business is careful estate planning that incorporates business succession planning tools and strategies into the plan. You have undoubtedly invested a considerable amount of time and resources into building up your business to the point where it is successful. Whether you hope to pass on the business to the next generation, or plan to leave the value of your interest in the business to your loved ones when you are gone, care must be taken to ensure that your hopes for the business become reality.
If you were to become incapacitated tomorrow, would your business survive? Part of a well thought out business succession component includes designating someone of your choosing to step in and keep the enterprise running smoothly in the event of your incapacity and ensuring that they have the legal authority and practical tools necessary to do so.
Planning for your permanent departure is equally important. Will the business be passed down to the next generation or will your interest in the business be sold when you are gone? To ensure that your business does not become a statistic, you may decide to create a Family Limited Partnership (FLP). An FLP allows you to pass down your interest in the business slowly over time while maintaining the ability to run the day-to-day operations until you are ready to turn over the helm. There are also typically tax advantages to transferring ownership using an FLP.
If passing down the business is not an option, preparing for the sale of your interest should be part of your business succession plan. In that case, a Buy-Sell agreement might be a beneficial addition to your overall plan to ensure that your loved ones receive the maximum value of your interest. Unfortunately, surviving family members are often forced to sell a business for pennies on the dollar when plans were not made ahead of time. A Buy-Sell agreement guarantees that you (or your loved ones) will receive the fair market value of your interest in the business if the business must be sold later.
Contact Long Island Business Succession Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about how to protect your business in your estate plan, contact the Long Island business succcession planning attorneys at Eghrari Wealth Training Firm by calling us at 631-265-0599 to schedule your appointment.