Succession Planning for your Family-Owned Business

Bigstock-Couple-running-bookshop-13904324You've built and own a successful business. But the Smart Business article, "Five things you should know about estate planning for a family-owned business," asks if you've taken the necessary steps to sustain it. Your family, managers, and stakeholders need to have a firm grasp of your succession plan. Here are some pointers to help you with that planning:
Identify and prepare your successors. Smaller businesses may need someone to oversee a sale or liquidation. Communication with and buy-in by your team is critical. The group should have a clear understanding of your goals, what's intended and how to achieve it, way before the time comes.
Look at your liquidity needs. Business owners are often highly illiquid because of business value compared to other assets. Liquidity in your estate is important to provide for your family and replace your earnings. If estate tax is owed, your estate will need liquidity to pay those taxes or else face a forced sale of the business. Life insurance may be a good solution, with the structuring of life insurance policies through irrevocable trusts. The business itself could have a policy on you to help pay down debt, provide working capital, or replace your on-going contributions.
Structure company ownership to separate control from value. If you own a controlling interest in the company, issuing voting and non-voting stock (or managing and non-managing interests in a partnership or LLC) gives a lot of flexibility for your estate. One person or group can run the business and legally control it by owning the voting stock, and another group still can receive the economic benefits of ownership through non-voting stock without being involved in business operations. Having a trust to own both voting and non-voting stock is frequently better than outright ownership.
Reduce your estate tax liability. Federal estate tax of 40% applies to estates over $5.45 million and $10.9 million for married couples. Consider decreasing that liability with some wealth-transfer planning. An owner of a profitable, cash-flowing business could transfer wealth out of the owner's taxable estate and into trusts for family at little to no gift tax costs through installment sales of stock to irrevocable "defective" grantor trusts (IDGTs) and funding grantor retained annuity trusts (GRATs.). These reduce the need to purchase life insurance or set aside liquid assets in your estate to pay the tax. Talk with a qualified estate planning attorney to properly implement them.
Estate planning for a family business owner is a complex and on-going proposition. Work with an experienced estate planning attorney to address the points above to help you reach the best outcome.
Reference: Smart Business (March 18, 2016) "Five things you should know about estate planning for a family-owned business"


Business Owners and Rising Taxes / York, PA

Wills-trust-estates-bank-beneficiary-trust-trusteesAs changes to the American Taxpayer Relief Act and the Affordable Care Act of 2012 become effective, business owners are facing escalating tax rates. Insightful enterprises are employing wealth management strategies to counteract the cost. Continual planning is essential for finding opportunities that will reduce the financial burden. Several options exist to help corporations retain wealth and reduce taxes legally.

A recent article on theInsurance West website, titled Important Tax-Planning Tips for Business Owners In 2014,” states that retirement packages can decrease tax liabilities by deferring income. At the end of the business year, companies will be examining data to see if there are any tax savings available on defined contribution, benefit, cash balance and 401(k) plans.

The original article notes that gathering this data will allow business owners to make informed decisions about potentially accelerating deductions and deferring income into the next quarter. Compiling financial projections and reports is extremely important for proper tax planning.

The original article also reminds us that integrating personal tax planning into the company tax planning allows state income, real estate and mortgage taxes to offset business revenue. Your business planning and estate planning attorney will be able to suggest solutions such as legitimate tax shifting by employing children, who can start a Roth IRA, along with the tax benefits of continuing education.

There have also been two pieces of tax extender legislation passed by the Senate and the House which would extend provisions for businesses—bonus depreciation, generous donations for S corporations, smooth transitioning from C to S companies, and a $25,000 reduction on Section 179 expenses.

Next year the Affordable Care Act's employer mandate will go into effect for companies with more than 49 full-time employees. Appropriate health insurance for employees must be documented for compliance, and with this companies are looking into various tax options.

According to the original article, you need to integrate your estate planning into your corporate structure to reduce the size of your estate, and business owners may also consider giving shares to family members who are in a lower tax bracket.

An attorney experienced in business and estate planning can help you make the right strategic moves as the year comes to a close.

For more information about estate planning, please visit my estate planning website.

Reference: Insurance West (November 8, 2014) Important Tax-Planning Tips for Business Owners In 2014

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