For many people, owning a small business is part and parcel of the American Dream. If you are one of those people, and you have worked hard to make that dream a reality, it is imperative that you also take steps to protect the business you have created and nurtured. Not only must you protect that business from a wide variety of potential threats during your lifetime, but you must also include your business in your estate plan to ensure that it successfully makes the transition to the next generation or that your loved ones receive the fair market value for your interest in the business if you do not plan to pass it down to your children. An asset protection lawyer can help you protect your business now and in the future by incorporating a business succession component into your comprehensive estate plan.
What Threats Might Your Business Face?
Like most small business owners, you have probably invested untold hours of hard work along with a small fortune into getting your business venture off the ground and to the point where it is turning a decent profit. Given how difficult it is to get a business running smoothly, you have likely not had the time or inclination to worry about potential problems because there were too many actual problems. Now is the time, however, to think and plan ahead. To better understand why that is necessary, ask yourself the following questions:
- If you are incapacitated tomorrow because of a catastrophic accident or debilitating illness, who will take over the immediate day to day control of your business?
- Is it clear to your employees, business associates, and family who will take over in your absence and will they accept that person as their leader?
- Does the individual designated to take over have the legal authority to do so?
- Will your family continue to benefit financially from the success of the business during your incapacity
- If you become permanently disabled, or retire, who will take over your business?
- Will your business be included in the probate of your estate?
- If your business will be part of your estate, what will happen to the value of your interest in the business if it is sold and how will the value of your interest be determined?
- If your business is a family owned business have you prepared the next generation to take over?
- Have you set up the proper legal structure for the business to facilitate the transfer to the next generation?
- What will the tax implications be for your business should you die?
- Does the business have sufficient liquid assets to cover any tax debt that might be owed when you die?
If you cannot answer all of these questions, it is time to sit down and create a business succession plan because failing to do so puts your heard-earned assets at risk if something happens to you.
How Can I Protect My Business Assets?
Just as you would plan to protect any of your other assets, you must protect your business assets as well. If you plan to pass down the business to the next generation, you need to decide the legal and practical details of that transfer now.Â If you donât want to pass it down, you need to guarantee that you and/or your loved ones can sell the business for fair market value when the time comes. Using a Last Will and Testament is rarely the best option, even if you simply want to pass down the business to your children. Along with numerous missed tax avoidance opportunities, using your Will alone is disadvantageous for many reasons. One of the most important of those is that it does not address the possibility of your incapacity and how your business assets will be protected should that occur. Two asset protection strategies that do often work for a small business owner include using a:
- Family Limited Partnership â if you plan to keep the business in the family, a family limited partnership, or FLP, may be best for you and your family. You can 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. In addition, there are typically some significant tax advantages to creating a FLP.
- Buy-Sell Agreement — this option is often used when there are partners involved who are not family members or when passing the business down to the next generation is not even a consideration. 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), or a potential buyer, 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 an Illinois Asset Protection Lawyer
Please feel free to download our FREE estate planning worksheet. If you have questions or concerns regarding how to protect your business, contact an experienced asset protection lawyer at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.