1) Is your business your largest asset?
The first reason to include your business in your estate planning is that it is likely one of your most valuable assets. The business may be the asset most likely to create potential tax consequences based on its value. Would it be valuable to remove portions of the business from your estate? Although currently there is a substantial exemption for your assets, this may be changed at any time, and it worthwhile to consider how to minimize the tax liability of your estate.
2) What family members or co-owners have an interest in your business? Who should have an interest in your business as part of your succession plan?
Your business may be the point of the most contention in your estate. Is there a family member that has a vested interest in seeing the continued success of the business? In contrast, are there family members who need to be compensated equally, since they do not have an interest in the business? A thoughtful estate plan can address how each heir can have a continued interest in the business or be compensated for allowing other family members to take charge of the business going forward. Additionally, proper time needs to be allocated for a smooth transition of management. You will want to leave the business in the hands of a well-trained individual.
Alternatively, are third parties interested in the continued success of the business? Co-owners of the business may have an interest in obtaining the membership interest from the family. Do you need to be in a position to sell the business for the benefit of your family? Will your family benefit more from continued management of the business or from liquidating the business asset? Identifying the proper parties to inherit your business and structuring that inheritance can often take time and strategy. Therefore, it is important to begin developing a succession plan for your business, so your business has continuing success, whether it is managed by existing, co-owners, future generations of the family, or even new management.
3) Do your corporate documents restrict how your business assets can be transferred?
The governing documents of your business entity may include transfer restrictions on your interest in the business. You may need to make agreements with the other members of your business in order to attain your estate planning goals. Do the co-owners have to revise company documents to allow you to transfer your interest? Do the co-owners want the exclusive right to acquire your interest? Do the co-owners of your business have the same estate planning objectives so that there is common strategy among the owners? Existing company documents may substantially impact how you plan for the next generation, and it may take negotiating with other owners of the business to achieve these goals.
As you can see, your business is a valuable asset of your estate, and proper planning for the future can take coordination with members of your family, co-owners, and/or potential investors or parties interested in acquiring the business. Thus, it is important to consider your goals for the business and set forth an estate plan that is prudent and evaluates the interests of all relevant parties.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.