Estate Planning for the Family Business: 4 Questions You Should Consider

Estate Planning for the Family Business: 4 Questions You Should Consider

Your business interests are an important asset not only to you and your family, but also your employees. If something were to happen to you, is there a plan in place for your business? A carefully drafted estate plan, along with appropriate corporate succession planning, will ensure your family business not only survives, but thrives, into the next generation, and your family remains taken care of.

If your business has multiple owners, do you have a buy-sell agreement?

This may be a separate agreement among shareholders, or it may be found in your company’s bylaws or operating agreement. A buy-sell agreement puts restrictions on the transfer of ownership interests in a company and may also provide for what happens in the event of an owner’s death. When making your personal estate plan, you should always consider what your business’s corporate documents already provide.

If you have an existing buy-sell agreement, how long has it been since you and your co-owners have reviewed it?

Terms that made sense when your business was new may need to be updated. Your succession plan, including any buy-sell agreement, should be a living document that changes with your business.

If a buy-out of your interests is contemplated, how will it be funded?

Many business owners use life insurance policies to ensure enough liquidity to fund a buy-back of stock. Whether the policy is owned by the business to fund a redemption, by a business partner, or by a trust, insurance is an excellent way to make sure there is cash readily available to compensate your estate for your business interests. Insurance policies may also be used to ensure your business has enough liquidity to remain a going concern.

How are your business interests titled?

Placing business interests in trust may be an important step to your succession plan. Depending on the fair market value of your business interests, the tax impact should also be considered. Minnesota’s estate tax exemption is presently $3 million, and the rate ranges from 13% to 16%. Many family business owners engage in planned gifting programs or use irrevocable trusts to reduce the overall value of their taxable estate and transfer business interests to the next generation, reducing or eliminating the tax impact of those assets.

Abby Pettit

Abby Pettit

I am passionate about my role as a counselor and educator and believe that the first and most important step in a successful attorney-client relationship is understanding what is most important to my clients and their families. I take the time to get to know my clients and learn about their lives and businesses, so that they can work together to plan a future that achieves their goals. My clients are families, closely held businesses and their owners, family farms, independent community banks, and trust companies. Read Abby's Bio.

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