If you own a business or have an ownership stake in a corporation, you will need to account for these activities in your estate planning. You have likely spent years building up your business, so the last thing you want is for the estate tax or other issues to significantly reduce its value upon your death.
There are a few key ways in which good estate planning can benefit your business in the short and long term.
1. It ensures greater longevity for your business
When you have spent such a significant portion of your life building your business from the ground up, you almost certainly want to ensure it continues to thrive long after you are gone. Through estate planning, you can continue to pass along the ideas and designs you have developed with your company to future generations.
Estate planning allows you to plan your ownership transition in great detail so that when the time comes, it goes as smoothly as possible. Businesses with owners that do not take the time to plan how they will transition out are much more likely to struggle after their initial owners are gone.
2. It provides you with more long-term options for running your business
For example, with proper estate planning, you can take advantage of what’s called a buy-sell agreement. If your business has multiple co-owners, such an agreement will make sure the interest of any owners who pass away is automatically purchased by other owners in the agreement. This prevents beneficiaries of the deceased owner—such as children, spouses or other relatives or loved ones—from accidentally becoming owners of a company they do not want or are incapable of running themselves.
3. It helps you minimize potential estate taxes
There are several estate planning tools available to help minimize the potential tax impact your business would face upon your death. For example, you may transfer business assets to your children while still retaining some income through a grantor retained annuity trust (GRAT). As your business assets grow, the appreciation in value and equity for your business would not be subject to taxation.
4. It keeps you looking toward the future
As difficult a subject it can be, you can never know for sure when your time to pass has come, so you should always be prepared for all possibilities. A cohesive succession plan could take as long as a decade to really work well, so you should have the groundwork laid for it well in advance.
The estate planning tools and processes you use depends largely on the type of business you have and the value of your company and any business-related assets you have. To learn more about how to account for your business in your estate plan, contact a trusted attorney.
Steven K. Hardy is Chair of the Corporate, Tax and Estate Planning Practice Group at BoltNagi, a well-established and respected business and corporate law firm proudly serving clients throughout the U.S. Virgin Islands.