You’ve worked hard to build your business. Perhaps it is a family business, engaging your spouse, children, or grandchildren, and you plan for it to continue long after your death as a legacy to those you love. There is good news here: the law presumes you want your business to outlive you! But you must take certain steps to ensure that the family business remains under the control of the family, and that they aren’t burdened with enormous tax obligations after your death.
Make the Business All Business
Above all else, as you operate your business, remember to keep business assets and liabilities separate from personal ones. Deciding what is owned by your business versus what is owned by you personally can help prevent disputes with creditors both before and after your death. Establishing a trust or additional limited liability companies may be one way to protect both your business and personal assets. Many small business owners, after operating their business for a long time, get complacent about this — they might start using a business credit card for personal items, or writing business checks to pay for a child’s private school. While those are sometimes acceptable practices, you don’t want to make those decisions without a full understanding of the consequences.
Reduce or Eliminate Tax Liability on Future Owners
After your death, will your family inherit your share of ownership in a business? Unless you have spelled out how this transaction will work, the rights of those who survive after you will be determined by state law. And having your descendants attempt to buy out your shares of a business can be dicey. Giving the business to them can result in enormous gift and estate tax liability. In some cases business operations can be legally split into separate entities, with differing ownership structures, to completely eliminate or reduce estate tax liability.
Avoid Probate of Your Family Business
If a business goes into probate after your death, which is exactly what will happen if you die without a trust as the owner of a small business, it can be disastrous for the business. Probate puts the business under the control of the court, sometimes for a year or more — causing the new owner(s) to have to seek court approval for business decisions. The answer to this problem is the creation of a living trust. Through this legal device, your business will pass to those people you specify without going through probate with the courts. A living trust can be the answer here, no matter whether you own your business solely or with other owners.
Use Insurance for Your Small Business
Liability insurance covers damages for personal injuries and property damages that other people cause. Property insurance covers your company’s assets — these policies sometimes include coverage for inventory, but sometimes they don’t and you’ll need a separate policy if your business stocks goods for sale. You may even consider an umbrella policy to cover exposure that goes beyond property insurance. Insurance protects you from the unexpected, and when something does happen, your cash flow is not wiped out trying to deal with the emergency. More than one small business owner has filed bankruptcy and closed up as a result of not having enough insurance.
Keep Your Estate Plan Up-To-Date
Life changes fast, but that’s no reason not to have a fully up-to-date succession plan for your business, and estate plan for your personal life. Whenever your assets, marital status, physical location, or debts change significantly, it’s time to review your estate plan. The best idea is to set an annual appointment with your lawyer to review your situation and make adjustments to your plan. At East Coast Trial Lawyers, we make the process of annual reviews as inexpensive and painless as possible for our estate planning clients. Call 757-352-2237 or contact us online and lets talk about how we can help you leave a lasting legacy with the business you’ve built.