Estate and Succession Planning for the Success of a Business

Estate and Succession Planning for the Success of a Business

Sufficient planning is always essential for your business to secure it from different risks. Every business owner should pay attention to Estate and Succession Planning to sell your business or keep it within your family after your death. Regardless of available options, you have to pay attention to careful planning to keep the business running successfully and protect it from unexpected and large tax liabilities. All business assets may go through validate unless the assets permit you to name the beneficiaries. Particular GRUTs or GRATs trusts may be established during a lifetime that allows sufficient growth of trust assets to pass exterior of the taxable estate. You may find it important to consult an accountant or a tax preparer about particular circumstances.

Tax Considerations

You have to understand that the value of your organization may consistently grow between your planning for real estate and when you die. The taxable land will contain the value from the date of your demise. 

Leaving Your Business for Co-owners

If a business has one or even more co-owners, you can establish an agreement for this business that after the demise of any proprietor, the other proprietor(s) will automatically purchase the interest. Just like a buying and selling agreement, this arrangement can be beneficial for the heirs of the deceased owners, such as spouses and family members. You can purchase a life insurance or ILIT (irrevocable life insurance trust) may be a good option to cover buy and sell agreements and offer liquidity.    

Produce a Succession Plan

The succession plan of business must address the methodical transfer of ownership and management of a business. The Estate and Succession Planning can have:

  • Support, training, and development of successors
  • Allocation of authority and responsibility to successors
  • External advisors and successors to increase the necessary objectivity of procedures
  • Exploiting the retention of main employees through reasonable compensation planning for family and non-family workers, inactive and active shareholders and management

Planning for the Transfer of Ownership

You should have special planning considerations, such as:

  • Synchronization between new business owner and new business manager
  • Time to transfer business during your life. This will be beneficial for you because you can consult with the successors and decrease the risk of discounted business sales.
  • Contemplation of the best opportunities for the business and family members      

Steps to Maximize Taxes and Evade Validation

The gap amongst the worth of your business while you are planning your estate and its actual worth after your demise along with other liquidities issues may need ILIT for proper management. If the structure of ILIT is correct, you can get the benefits of underlying insurance policy. It will not pass through validation and available instantly to provide cash for taxes on estate and other necessities.

You can transfer the assets of your business to children and make them a good source of income for yourself by establishing an annuity trust. If the assets grow rapidly, it will become an effective tool for the growth of your business to manage estate taxes. These trusts may become an efficient tool to pass on your growing businesses. To obtain tax benefits from trusts, the trusts should be structured and you have to outlive the particular term of the trust. The structure of ILIT can be a good option to mitigate risk as a replacement of wealth to offset potential tax liability that may occur in case of your death before the expiry of trust.

Family Limited Company

For estate and succession planning, you can consider another option, such as family limited company or family limited liability partnership. For instance, you may form an alliance to hold the assets of the business. Some restricted units of association may be transferred to successors. It will eliminate these units from a taxable estate. The interests of limited partnership may not carry control of partnership and value of transferred assets can be discounted for the gift purposes. With trusts, your family limited partnership will be subjected to complicated rules so you should consult a tax preparer and other professionals, such as estate planners.

After estate and succession planning, you will be able to avoid significant tax burdens on your business organizations. 

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