Transferring a Business Considerations for Estate Planning
Are there special considerations I should make about my business?
If you do not plan carefully, a business that you and your partner run could be taken away from your partner upon your death. If, for example, the business is part of your estate and you do no estate planning, your interest in the business will be disposed of in the same way as the rest of your estate. If your life partner is also your business partner, he or she could find himself or herself running the business with your family of origin after your death. Planning for business succession is essential if your partner is to continue to control the business and minimize taxes.
What if I am just starting a business?
The best planning begins early in the life of a business. You may be able to pass on your interest in your business without estate taxes, or at least with the liquidity to pay estate taxes due, through use of legal devices such as buy-sell agreements and voting trusts. This is definitely a time to seek the professional advice of a financial planner and lawyer.
My business is already established. What are my succession-planning options?
Insurance on your life may be used to fund the sale of or the taxes levied upon your business interest at your death. You may have loyal employees who could run the business after your death. In that case, you might consider ultimate transfer of stock through a tax-advantaged employee stock option plan (ESOP). Or you might find that it’s best to give or sell a controlling interest during your life to one or more family members. Many of these options also can be financed through insurance benefits.
How can we avoid that "pay-as-you-go" estate tax?
Life insurance owned by more than one person is an excellent way to enable your heirs to pay estate taxes with the policy’s proceeds. The proceeds aren’t taxed because they are already owned by your heirs or by an irrevocable trust.