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Planning for the Future of Your Business

Categories: Business & Corporate, Article

business estate planning

In an economic downturn, individuals and business owners may question whether or not it is a good investment to spend time and resources on an estate or business succession plan. Actually, it is an excellent time. First, business may have slowed down enough for the owners to focus on the next generation ownership and secondly, your estate may be able to take advantage of lower valuations to transfer assets.

Importance of an Estate Plan

Why is it important for a business owner to have an estate plan? An estate plan transfers the business owner's assets to family members. If there are no family members who are interested in continuing the business, it provides a mechanism for the sale of the business. It helps avoid probate and depending on the value of the estate, may significantly reduce estate taxes.

Is a Will enough for someone with a business? A business owner should have more than a simple Will, as it provides who will receive assets, including the business, but won't avoid probate or help the business owner save estate taxes.

Minimizing Estate Taxes

How can a business owner save estate taxes? The estate tax system is confusing and there are proposals for changes under the new administration. In 2009, a married couple can have a combined estate of $7,000,000 and avoid estate tax in a properly structured estate. In 2010, there is no estate tax. In 2011, a married couple can have an estate of $2,000,000 and avoid estate tax in a properly structured estate.

How do you calculate the value of an estate for estate tax purposes? Fair market value of all property is included in the estate as well as proceeds of life insurance and the value of retirement and pension plans. The value of the estate is then reduced by liabilities.

What if the estate isn't large enough to trigger estate taxes? Using a trust instead of a Will helps maintain privacy upon death and avoids the expense of probate. The trust benefits the creators during their lifetime. If incapacitated, a successor trustee will manage assets, so conservatorship proceedings are not needed. When the creator dies, if assets, including business assets, are transferred to a trust, they will pass to heirs without probate.

Estate Planning Scenarios

There are two business owners who each own 50% of the business, what happens if one of them dies? A buy-sell agreement provides for a buy-out of the ownership interest of the deceased shareholder. How a buy-sell is structured will depend on many factors unique to the situation. Many times, life insurance is utilized to fund the purchase.

What happens upon retirement or disability of one of the 50% business owners? These cases can be very difficult. If the departing owner is a key employee, their services need to be replaced. Buy-sell agreements, with appropriate methods for determining the value of an owner's interest for a buy-out and, most importantly, how to fund the buy-out, are used.

These are such difficult economic times for business owners; can an estate plan help a business owner be protected from creditor's claims? No. Asset protection is different from estate planning, however it can be done in conjunction with an estate plan. Certain entities can provide business owners with better protection against claims from personal as well as business creditors. One method is to structure entities as part of a gifting program.

Timing of Estate Planning

Why is this a good time for someone with a larger estate to do an estate plan? We anticipate that asset values will increase in the future. If a gifting program is combined with an estate plan, using today's lower values, future appreciation can be removed from an estate to help minimize future estate taxes.

This process sounds like it can get complicated; where does someone start? Always start with the basics, which is a trust. A trust does not have to be overly complicated. It can range from standard to customized, depending on the personal circumstances. Many people procrastinate starting their estate plan, because they don't want to confront the subject of their eventual demise. Estate plans, health care directives and a power of attorney will help your family and business through an emotional and difficult time.


Founded in 1984, Jaburg Wilk PC offers extensive experience, diversity in practice areas and the ability to think like a business owner. We are an Arizona mid-sized AV rated law firm, the highest rating that a law firm can receive. Our attorneys, paralegals, and other support staff meet our clients' diverse legal needs and provide exceptional service through our 21 Fundamentals which comprise The JW Way.