When a family has a business there are arrangements to be made with regards to passing that business on in an estate plan. For family business owners, estate planning is crucial to the success of the business. If you have not already drafted an estate plan that includes business planning, you should consider doing so. Early planning will help to ensure that your family’s main source of income is protected.
Three common options for estate planning business transfer are:
If you need income from your business, you could sell it to your children. If you do so you must sell it at fair market value or you may incur gift taxes.
In a buy-sell agreement, a business owner can specify that after a certain event, the designated successor purchase his or her interest in the business. Common triggering events include retirement, incapacity, and death. Buy-sell agreements are ideal for those business owners who know who they would like to transfer the business to, but who are not quite ready to do so.
Ownership in a business can also be transferred through a living trust. In order to do this, the business owner must first transfer the business to the trust then name the intended successor as successor trustee to the trust. Prior to the business owner’s death, he or she would serve as both trustee and beneficiary of the trust. This allows the owner to continue to run the business for as long as he or she chooses.
When looking at options for transferring a family business, consult with an experienced estate planning attorney.