Owning a successful business takes years of hard work and dedication. But failing to establish an estate plan that accounts for your business, could place your business in jeopardy upon death. While many individuals shy away from estate planning because of the chilling thought of death, assuring your business remains viable upon death could mean the difference in providing for your family, employees, and loved ones in the long run. Proper estate planning can take into account various aspects of business ownership and help ensure that your business continues to operate as you see fit.
No one knows a business better than the owner. Therefore, one of the most fundamental aspects of business ownership in an estate plan is designating a person or persons to take ownership of your business. Your plan should include details of the development, training, and support of successors. Furthermore, it should delegate the responsibilities to be carried out by each successor if there is more than one. If your business has co-owners, you may also consider establishing an agreement that upon the death of any owner, their interest is automatically purchased by the other owners, often at a pre-agreed upon price and terms. This agreement is often referred to as a buy-sell agreement, and is crucial to ensuring beneficiaries of the deceased owner do not unintentionally become owners. In certain circumstances it can be funded by life insurance bought for that specific purpose.
There are significant risks associated with failing to complete an estate plan that includes your business. First of all, ownership of the business could end up in probate with various people competing for ownership. The operation of the business during the probate process could suffer. Whoever is awarded ownership in probate could be an individual that you would never want in charge of your business. This could greatly affect the future of your business and its profits.
Besides ownership problems, there is also the possibility of tax consequences for a failure to have an estate plan. You’ve worked hard to establish a profitable business. However, a failure to provide for your business in an estate plan can mean losing that profit to the IRS (and even the NYS Tax Department) in estate taxes. This type of tax, also called death tax, usually ranges from 35 to 50% of the business’ value on the federal side and is due within nine months of your passing. This can destroy many businesses because they are often not liquid. This often leaves the estate the only options of selling the business in its entirety or conducting a fire sale to pay the estate taxes. Visiting an attorney with a knowledge in business law and estate planning can help you plan around the estate tax problem that many businesses face upon the death of the owner.
Planning for your business in an estate plan is also a great time to take stock of what the business is worth and what you bring to it. A thorough review of the company should be made while formulating and executing an estate plan so things like bank accounts, lines of credit, and files do not get lost in the transition. A business estate plan should be re-visited routinely as the situation of a business changes frequently.
If you are in the process of estate planning, an experienced attorney can provide you with the legal guidance necessary to help plan for your business’s future. From the simple to complex, the attorneys at Blodnick, Fazio & Associates are skilled in all aspects of estate planning and are dedicated to representing its clients with diligence and compassion. With an office conveniently located in Garden City, Nassau County, the firm is dedicated to providing high quality legal representation at reasonable prices. Call (516) 280-7105 to arrange a free consultation.