If you own a small business, estate planning takes on heightened importance. You need to properly plan for what will happen to your business interests when you retire, become incapacitated, or pass away. Without guidance from an estate planning lawyer experienced working with business owners, your business’s future could be jeopardized.
Below, we expound on some of the key reasons small business owners need to consult an estate planning attorney, like those at Hammond Law Group, to protect their company.
Developing a Business Succession Plan
A clearly defined, legally robust business succession plan is crucial for seamlessly passing your ownership stake and management role in the company to your chosen successors. An estate planning lawyer will help develop a detailed succession plan addressing valuation, taxation, division of interests, and implementation.
Guiding Ownership Transition
An attorney experienced with business succession planning can advise you on the best ways to gradually shift partial ownership of your company over time to successors like children. This transition process is complex but essential to avoid disruptions. The right legal guidance makes navigating ownership changes smooth and conflict-free.
Resolving Family Business Conflicts
Family businesses face added complications as multiple family members often own stakes and fill key roles. An estate planning lawyer can serve as an impartial mediator to resolve any conflicts that arise through succession planning in a way that keeps family peace.
Protecting Intellectual Property
Your company’s intellectual property, like patents, trademarks, and trade secrets, needs to be carefully transferred to the successors you choose. An attorney will ensure your IP assets are formalized in your estate plan to prevent loss.
Advising on Tax Considerations
Passing down ownership of a small business to heirs involves highly complex tax issues. An experienced estate planning attorney can provide invaluable tax guidance.
Some key tax considerations include:
- The value of business interests and assets passed to beneficiaries may be subject to estate taxes at the federal and state levels if values exceed exclusion limits. An attorney can use trusts and other tools to minimize estate taxes.
- Transferring appreciated business assets and ownership shares may trigger capital gains taxes if not handled properly. Your lawyer will structure transfers using techniques like gifting shares over time to defer gains.
- Gifting interests prior to death may utilize some of the lifetime gift tax exemption amounts and require gift tax returns to be filed if substantial. Your attorney will advise you on the implications.
Addressing the many potential income, gift, estate, and capital gains taxes triggered by transferring business assets and equity is very complex. However, an estate planning attorney experienced in business succession planning will ensure your plan minimizes tax burdens through careful structuring.
Facilitating Smooth Leadership Transition
Your attorney can help identify and groom new leaders from family or management to take over upon your retirement or death. Documented succession plans and training ease leadership transitions when the reins are handed over.
Maintaining Business Stability
Estate planning attorneys recommend naming interim decision-makers empowered through leadership transition periods after an owner’s departure. This sustains stability until successors assume full control according to the succession plan.
Establishing Contingency Plans
Estate lawyers emphasize developing contingency plans designating temporary leadership if owners unexpectedly die or become incapacitated without warning before a full succession process is completed. Contingency plans prevent turmoil.
Splitting Ownership Appropriately
Dividing company ownership between multiple successors like children can be challenging. Your attorney can evaluate and formalize a division of equity that keeps family peace while incentivizing successors to stay active in the company.
Funding Buy-Sell Agreements
Buy-sell agreements fund the purchase of an owner’s share by co-owners upon events like retirement or death. Your lawyer will help structure agreements and suggest funding via life insurance to enable smooth buyouts.
Valuing the Business Accurately
Objectively valuing a small business is difficult but necessary for estate plans distributing ownership shares. Attorneys recommend valuations by accredited professionals to support fair treatment of beneficiaries.
Preventing Asset Division Disputes
Ambiguities in business asset division during succession often lead to family squabbles. Your lawyer will craft binding legal documents and agreements detailing who receives particular assets, preventing disputes.
Providing for Surviving Spouses
Business interests often comprise a large share of an owner’s wealth. Your attorney will help ensure your plan provides fairly for a surviving spouse while also transitioning the business to chosen successors.
Keeping the Business Private
Publicly filing your estate plan risks exposing business information. Estate lawyers use private trusts and other tools to settle your estate and business succession plans in a way that avoids this disclosure.
Guiding Funding Sources
Business transitions require funding for buy-sells, taxes, etc. Your estate planning attorneys can set up appropriate trusts and suggest funding sources like life insurance to fund succession costs in a tax-optimized manner.
Protecting both your family and your business requires thoughtful planning. Partnering with an estate planning lawyer uniquely experienced in working with owners of small firms, like those at Hammond Law Group in Colorado Springs, is invaluable to developing a solid plan securing your business legacy.