Estate Planning for Small Business Owners:
Strategies on Wealth Transfer, Strategies on Reducing a Taxable Estate
As a business owner, you have worked hard to build your business from the ground up. You have poured your blood, sweat, and tears into making your dream a reality, and now your business is thriving. But have you given any thought to what will happen to your business when you retire or pass away? Estate planning is a crucial—but often overlooked—aspect of being a small business owner.
Estate planning is the process of anticipating and arranging for the disposal of an individual’s estate in the event of their death. A well-executed estate plan can minimize the impact of taxes and probate on your heirs, ensure that your business continues to run smoothly after you’re gone, and give you peace of mind knowing that your affairs are in order.
Why Estate Planning Is Important for Small Business Owners
As a small business owner, you have several unique considerations when it comes to estate planning. For one, if your business is co-owned, you need to consider what will happen to your share of the business if you die or become incapacitated. You will also need to think about how to transfer ownership of the business in a way that minimizes taxes and maximizes value. Furthermore, if you have employees, you will want to make sure that they are taken care of in the event of your death or incapacity.
Estate planning is not just about preparing for death; it’s also about protecting yourself and your loved ones in the event of disability. If you become sick or injured and are unable to continue running your business, having a solid estate plan in place will ensure that someone you trust can step in and take over.
Common Estate Planning Strategies for Small Business Owners
Many different estate planning strategies are available to small business owners, but not all of them will be right for every situation. The best way to determine which strategies make sense is to consult an experienced estate planning attorney who can help you assess your unique needs and objectives. Some common estate planning strategies for small business owners include:
Buy-sell agreements: A buy-sell agreement is a contract between co-owners of a business that dictates what will happen to each person’s ownership interest in the event of their death or incapacity. Buy-sell agreements can be structured in various ways, but they all have one goal: to keep control of the business out of the hands of outsiders (like creditors or spouses).
Business continuation trusts: A business continuation trust (BCT) is an irrevocable trust designed specifically for businesses. BCTs can be used for wealth transfer or asset protection purposes (or both). When structured properly, BCTs can minimize taxes on transfers of ownership interests and give family members time to adapt to their new roles within the company.
Family limited partnerships: A family limited partnership (FLP) is a partnership created by family members for the purpose of owning and managing family assets (like businesses, real estate holdings, etc.). FLPs can be used as part of a larger wealth transfer strategy, as they offer significant gift and estate tax advantages.
Estate planning may not immediately come to mind when you think about being a small business owner, but it’s an important consideration nonetheless. By taking steps now to create an estate plan tailored specifically for your needs, you can minimize the impact of taxes and probate on your heirs, ensure that your business continues to run smoothly after you’re gone, and give yourself peace of mind knowing that your affairs are in order.
Take the Next Steps!
At New Century Investments, you are our priority! We will listen to your situation as an entrepreneur and help you make the most informed decisions for your business and wealth transfer plan. We will help you feel confident and prepared before meeting with an attorney or insurance advisor, if that is the route you need to take. Book free consultation today!