estate planning family business

Your ownership share in a family business is likely one of your most valuable assets. It took a good deal of work and dedication to grow it into what it is worth now. You should apply the same commitment to making sure it continues to hold its value when you’re gone. That means including the business in your estate planning decisions, which in turn requires planning for succession.

A succession plan can help ensure continuity in business operations and avoid family disputes in case of your retirement, incapacity, death or other triggering event. It can address such questions as:

  • Who is eligible to purchase or take over your ownership share?
  • How will your share of the business be valued for transfer or inheritance purposes?
  • Who will manage your business, and will they be family members or others?
  • Are your successors adequately trained for leadership roles?
  • How will key employees be retained and compensated?
  • Is there an exit strategy for your retirement and sale of your shares?

Since so much of the value of a small business is its good will, a well-crafted succession plan is important to maintaining the business’s reputation and the confidence of its customers and the market at large.

Effective estate planning can also avoid probate of your business ownership share and reduce liability for estate taxes. One method is the establishment of a grantor retained annuity trust (GRAT), which lets you transfer your business assets to your children while still maintaining control and retaining a source of income for yourself. Any appreciation in the value of GRAT assets is exempt from estate tax.

Another method is to set up a family limited partnership or a family limited liability company to hold your business assets. Transferring partnership or LLC units to your successors can potentially keep them out of your estate for probate and tax purposes.

It may also be advisable to set up an irrevocable life insurance trust (ILIT), into which benefits from a designated insurance policy can be paid. That makes these benefits available immediately to pay estate taxes and other costs arising from your death.

A qualified estate planning attorney can steer you through the critical decisions involved in dealing with business ownership succession and its impact on your overall estate plan.

The Law Firm of Joseph M. Udall, PLC in Mesa helps Arizona residents with estate planning and business succession planning. Call (480) 500-1866 or contact us online. We provide telephone consultations, Saturday and evening appointments are available.