For many people, owning their own business is very much a part of the American dream. If you are one of those people, and you have achieved that dream, you undoubtedly worked hard to make your dream a reality. Do not make the mistake of seeing your hard work go down the proverbial drain at the end of your life because you failed to include your business in your estate plan. To help ensure that does not happen, the Vernon Hills business planning attorneys at Hedeker Law Ltd. discuss business succession strategies.
Why Is Business Succession Planning Important?
Getting a small business off the ground is not easy. Keeping that business afloat during its infancy is equally challenging. Once the business is turning a profit, however, your focus needs to shift to ensuring that your financial interest in the business is protected in the event of your incapacity, retirement, or death. To illustrate the necessity for a business succession plan, as yourself the following questions:
- If you are incapacitated tomorrow in a tragic accident, 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?
- Does the individual designated to take over have the legal authority to do so?
- Will your family continue to benefit from the business’s success in your absence?
- 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?
- 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 with a business planning attorney and decide on the answers and then include them in a business succession plan.
Business Succession Strategies
There are several different ways in which your business can be handled in your estate plan. One thing you want to avoid is simply gifting your business to children, or other family members, in your Last Will and Testament because business assets could be lost to gift and estate taxes if your estate lacks the necessary liquidity to cover the tax bill. In addition, gifting your business leaves many questions about the management and profits of the business unanswered. Two commonly used options that you may wish to consider include:
- Family Limited Partnership – 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. 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 Vernon Hills Business Planning Attorneys
For more information, please download out FREE estate planning worksheet. If you have additional questions or concerns regarding business succession planning, or you wish to get started on your business succession plan in the near future, contact the experienced Vernon Hills estate planning attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.