Estate planning is often avoided and it’s no wonder why. Thinking about who will inherit your assets after you’re gone isn’t very pleasing but it is necessary.
A common reason why most people overlook estate planning is the popular notion that you need to own the priciest assets or own tons of businesses before you consider estate planning and this couldn’t be more wrong. Just as waiting till a later age, perhaps closer to retirement isn’t very favorable to you, your heir and your clients.
Without estate planning services you stand to jeopardize everything you’ve worked hard for and it could also have a long lasting and very costly effect on your business.
Here’s why you should consider estate planning services today:
1. Reduction of the business tax liability on your heir.
2. Keeping the company’s value and ensuring operations run smoothly.
3. Ensures sufficient liquidity to cover business-related expenses.
4. It allows you to plan for business succession, transfer, or sale.
5. It also avoids unfavorable court decisions.
WHAT YOU SHOULD KNOW BEFORE DRAWING UP AN ESTATE PLAN FOR YOUR BUSINESS
1. The first thing you need to know before writing a plan is that upon death, estate taxes can ruin your company. It’s possible to incur taxes worth half of the company or even more and this burden lies on the heir. In cases like this, in order to pay these taxes, the heir ends up having to sell a large portion of the company, which might not be ideal. The good news is that there are a number of ways to reduce these taxes and it is advised you consult your attorney.
2. If your business doesn’t generate a significant income while you’re alive this just means that upon your death the income will not suffice to cater for the financial needs of your family. This could leave a burden on your clients, team and most importantly, your heir. To prevent this it’s best you invest in life insurance to provide liquidity that will cover the expenses of your family.
3. To ensure that your heir is able to run your business smoothly without you, you’ll need a plan to properly equip your heir with the know-how. This is called the succession plan. In this plan, you will need to name the heir and explain how the company will be transferred. Enlisting estate planning services can also help you protect your business through buy-sell agreements. Buy-sell agreements work best with companies that have multiple partners. Under certain conditions like death or disability of a partner, the shares of the business can be sold to the remaining partners or given to the heir. Not only does this protect your business but it also protects your heir from incurring unwanted shares.
4. A very common misconception people have is that they only need a will to protect their business assets. But they fail to realize that a living trust will provide full protection by keeping their businesses out of court whereas a will won’t. A will simply covers division and distribution of assets after death but a living trust is a separate legal entity that efficiently has ownership of your business without incurring tax consequences or changes in control till your death.
Here are some advantages of a living trust:
· With a living trust, assets are not subject to court supervised distribution.
· By avoiding court supervised distribution, a living trust can save you money and unsatisfactory court decisions.
· A living trust also guarantees that the activities of your business remain private. Upon death, all asset transfers are done in the privacy of your attorney’s office.
· A living trust helps you alleviate estate taxes, court costs and legal fees.
Having prior knowledge of the above can help you make better decisions when engaging in estate planning services inclusive of your business.