Family-Owned Businesses Hidden Heading
Estate planning for family-owned business owners will take on a somewhat different complexion. You have to check the boxes that apply to everyone, and there are some added considerations that will vary depending on the circumstances.
Small Business Succession Planning
The first order of business is to determine how you will be passing the business along. If you are a sole proprietor and you simply want to sell it to the highest bidder, you will have liquidity that can be spread around as you see fit.
Other situations are more nuanced. For example, if you are leaving the business to one of your children, you probably want to provide balanced inheritances to their siblings. This can be done through the purchase of the appropriate levels of life insurance.
Buy-Sell Agreements for Business Partners
Speaking of life insurance, if you have a business partner, you could enter into a buy-sell agreement. Each partner would take out a life insurance policy on one another that is equal to the value of a share in the business.
Upon the passing of one partner, the surviving partner would collect the proceeds. They would be used to purchase the deceased owner’s interest in the property from their estate. In this manner, the remaining partner can proceed as usual, and the estate will have liquidity.
Federal Estate Tax
If you are a very successful business owner, you have to be concerned about the federal estate tax. The exclusion is the amount that can be transferred tax free, and the remainder is subject to taxation. It is important to note that your business is part of your taxable estate.
Estate Planning for Farmers and Ranchers
Many farmers and ranchers own vast tracts of land that have been in the family for generations. The value of the land can be considerable in light of appreciation over the years, and the business equipment and other resources would be part of the estate as well.
Working the land can provide a good living, but many farmers and ranchers are not extremely wealthy with regard to cash on hand. For example, let’s say that you own a ranch, and the land and the equipment on it are worth $20 million.
A hefty estate tax bill would be looming under this scenario, and your estate may not contain enough liquidity to pay the tax. In a situation like this, your family would be forced to sell the ranch to take care of the tax obligations.
You can prevent this if you take the right steps in advance. One possible course of action is the utilization of an irrevocable life insurance trust (ILIT). The trust would hold life insurance policies, and the payouts can be used to pay the estate tax when the time comes.
Estate Planning Solutions for Houston, TX Business Owners
When you work with our firm, we will gain an understanding of your objectives and your family dynamic and make recommendations. At the end of the process, you will emerge with a tailor-made plan that is ideal for you and your family.
To get started, call our Houston, TX estate planning office at 281-759-3213 or send us a message through our contact form and we will get back in touch with you promptly.
