No one wants to die, but everyone eventually does. And it’s true what they say – you can’t take it with you, so you need to plan to leave it behind.
If you own a business, estate planning can be even more complicated. Maybe you’ve spent years building your company up from the ground, and you want to make sure that your business can make a smooth transition to the next generation. Even if you plan to close your business when you retire or pass away, you still need to consider your business in your estate plan.
Business Succession Planning in Manhattan Beach
You may hope to close your business when you retire, sell it, or pass it on to a younger generation of the family. No matter what your plans for the future of your business, you need to make special considerations for it in your estate plan. Our Manhattan Beach, CA attorneys can help you plan your estate so that your business is passed on as you wish on your retirement, or so that your wealth can be protected after your death.
If you don’t yet have a business succession plan in place, you need to start making one right away. You might know in advance when you’re going to die or your passing might be sudden. Either way, having an estate plan in place will help your loved ones or co-owners to continue operating your business. It can also protect your wealth from California’s probate laws, which entitle a probate attorney to a specific percentage of any wealth that goes through probate.
If your business has co-owners, you may choose to implement a buy-sell agreement. This agreement stipulates that, in the event that one owner dies, the other owner(s) automatically buy out his or her interest in the business. This can be a good way to make sure your business continues to operate smoothly after your unexpected death, and it can help protect your spouse, children, or other beneficiaries from accidentally becoming co-owners in your business.
Your business succession plan should make provisions for the transfer of ownership of your business. It should make provisions for:
- The transfer of ownership of the business to a successor or successor, and the training, professional development, and support of those successors
- Coordination of efforts and authority between who will own and who will manage the business
- Consideration of the best interests of the owner’s heirs and the business
- The delegation of authority and responsibility for the business to successors
- The payment of advisors or external directors to help with the transition process, if needed
- The retention of vital employees, and the continued fair compensation of management, family and non-family employees, and inactive or active shareholders
- The difference between what your business is worth when you make your estate plan and what it’s worth when you pass away
Ideally, you should enact a succession plan for your business while you’re still alive. This can mean passing it on or selling it while you can still oversee the process. If your business is owner-dependent – meaning that it cannot operate without your direct involvement – then you need to make some additional decisions now. You will want to make plans to either:
- close the business when you decide to retire, or
- to transition to a multigenerational business model so that the business can be passed on.
If you plan to pass your business on, make sure your business succession plan provides for a specific successor and any professional development or support he or she will need to run the business. This is a kind of “insurance” for your successor in case you were to die unexpectedly and the business were to be passed on sooner than planned. If you would like to pass your business down to a minor child when he or she grows up, make provisions for what should happen to the business if you die before your child is old enough to take the reins.
Perhaps, instead, you would like to sell your business when you retire. This, too, should be part of your succession plan. However, just because you plan to sell the business, or close the business upon your retirement, doesn’t mean you can just ignore it in your estate plan.
Your family may still owe estate tax on the value of the business even if it dies when you do. Your business succession plan should include clear documentation of the business plan, as well as characteristics of the business that limit its transferability and could work to render it defunct upon your death.
The Difference Between Business Succession Planning and Individual Estate Planning
Business succession planning provides for the transition of a business to new ownership upon your retirement or death, whether you’re selling it outright or passing it down to the next generation of your family. It can also provide for the distribution of assets from the sale of your business upon your retirement.
Estate planning provides for the distribution of your personal assets and wealth to your heirs upon your death. If you own a business, chances are that business makes up a substantial portion of your personal wealth, so your business succession plan can form a part of your personal estate plan.
Whether you plan to pass your business down, close it, or sell it upon your retirement, the wealth and assets you have amassed through business ownership should be provided for in your estate plan. A trust, living trust, and will can help ensure that your assets are distributed among your beneficiaries when and how you prefer.
Business succession planning documents can provide for the continued smooth operation of your business after your death via a buy-sell agreement or other means of ownership transfer. These documents can protect your family from estate taxes in the event that your business can’t be operated by anyone else (which may be the case if you’re a doctor or lawyer in private practice, for example). They can even help you continue to receive income from the business after you retire, for example through a grantor retained annuity trust (GRAT) or a grantor retained unitrust (GRUT).
Contact a Skilled California Estate Planning Attorney Today
If you have a business, it needs to be part of your estate plan. No one likes to think about their own mortality, but it’s something you need to do – especially if you have business assets and a possible ownership transition to think of. The Ledbetter Law Firm, APC is dedicated to helping individuals and families plan for their futures through all aspects of estate planning.
Contact The Ledbetter Law Firm, APC by filling out our online contact form, or call us at 310-507-7022. We’re happy to discuss your estate planning needs and any questions you might have about trusts, wills, or the probate process.