3 Things Small Business Owners Need To Know About Maximizing The Value Of Their Estates
Having a will and planning for the division of your estate after you pass away is important for everyone, but it's especially important if you own a business. When you pass away, your business' assets will be combined with your personal assets in your estate. Since businesses often possess several expensive assets, this can substantially increase the value of your estate—this means that the beneficiaries of your estate will likely have to pay a significant estate tax.
Because of the increased taxable value of business owners' estates, proper estate planning is important. It minimizes the amount of taxes that your beneficiaries will pay on your estate, and it also helps to ensure the smooth sale or continued operation of your business. If you own a business, here are four things you need to know about estate planning.
1. Living Trusts Separate Your Business Assets From Your Personal Ones
Living trusts act as containers for your assets, and they'll continue to exist after you pass away. When you hold all of your assets in a living trust, your business assets won't be placed together with your personal assets in your estate—they remain safely inside your living trust. Additionally, a living trust will prevent personal creditors from seizing your business assets in order to satisfy outstanding debts that you may owe.
2. Writing a Succession Plan Is Important, Even if You're Planning to Sell Your Business
A succession plan outlines how you wish your business to operate after you pass away. The most important part of a succession plan is naming someone to take over ownership of your business. This can be a trusted friend, family member or business professional. Along with naming a successor, it's important to give them a copy of the information necessary to run your business—include account numbers along with information about your suppliers and creditors.
Having a succession plan is important even if you plan to sell your business after you pass away, as selling a business can take a considerable amount of time—the business world never stops running, so you want your business to quickly return to operation so it can begin appreciating in value as an asset.
3. Life Insurance Can Help Pay Your Estate Taxes and Your Share of the Business
Life insurance is a great estate planning tool that helps pay for final expenses and support your family members after you pass away. For business owners, however, it's even more important. Business owners should carry a special type of life insurance known as an irrevocably life insurance trust. Like a living trust, this type of life insurance is not included as part of your estate when you pass away—hence, it's not subject to estate taxes. It can be used by your beneficiaries to pay down business debts, personal debts and to pay off estate taxes after you pass away.
An irrevocable life insurance trust is also important if you're in a business partnership and wish to transfer your business to your partners after you pass away. Your partners will have to purchase your share of the business, and an irrevocable life insurance trust that names them as beneficiaries can give them the immediate cash that they need to do so—this prevents someone who isn't a partner purchasing a portion of your share.
Living trusts, succession plans and irrevocable life insurance trusts are all important tools that business owners should use in estate planning. They minimize the taxable value of your estate by separating assets, and they make it easier for your business to continue operating. However, they are also all very complex legal documents—you'll need the services of an estate planning attorney in order to set them up properly. When it comes time to plan your estate and your expectations for the future of your business after you pass away, contact an estate planning attorney in your area in order to discuss the best avenues to maximize the value your beneficiaries receive from your estate.
For more information, reach out to estate planning professionals like Ally M. Glaser P.A.