Four estate planning considerations for every business owner

Bruce Roher • February 05, 2018

Estate planning is an important issue for anyone with assets and heirs – regardless of age and health. However, when it comes to business owners, estate planning becomes particularly critical. Special consideration must be given to ensure the smooth transition of your business when you no longer wish to run it, or when you are unable to do so.

To help you effectively navigate the estate planning process, we present four estate planning questions which every business owner should consider.

1. What Does your Shareholder Agreement Provide?

Many shareholder agreements contain ‘buy-sell provisions’, which control what happens to shares in the case of retirement, death, or any other event that removes you from leadership.

There may also be a provision for a ‘buyout’ on death, funded by an insurance policy. This will fund the company’s purchase of the shares from the estate.

Additionally, there may be provisions in the shareholder agreement that deal with post-mortem corporate management, which will dictate the succession plan.

Each of these provisions are intended to protect the company’s wellbeing, in your absence. However, in doing so, they also change how your business holdings are handled by you on retirement, or by your estate.

2. Have You Considered Tax Implications of Exit Strategies?

If you are retiring and selling your business to a non-family member, it is important that you do so with a thorough understanding of the tax implications. With proper advance planning, an expert tax advisor will help you take full advantage of any potential tax minimization opportunities.

Alternatively, if you are selling or transferring shares to a family member, there are additional strategies that can be employed to minimize the tax implications on the transfer.

3. Have You Appointed a Successor?

If control of the company is to stay within your family, you may already have a successor in mind. However, before committing to a single successor, it is important to objectively evaluate the strengths and weaknesses of each potential candidate, to assess who is truly the most capable and who will be best for the business.

When a successor is chosen, it is important that they are made aware of, and in agreement, with your intentions. Be sure that they understand their expected role and are capable of assuming the requisite responsibilities. It is also advisable that you work with your successor personally, to ensure that he/she is properly trained and comfortable with their new role.

Finally, both your successor and the rest of your heirs should understand how the ownership of the business will be structured once it has been passed down. Will your successor have all the voting shares? Will other family members receive other assets or non-voting shares? And do the other family members feel that they are being treated fairly?

Addressing such issues in advance will facilitate the successor’s learning curve and prevent potential conflict within the family.

4. As a Business Owner, Have You Spoken to An Estate Planning Expert?

Estate planning for business owners can be a time-consuming, complex, yet absolutely essential process. Much of the complexity comes with the desire for your business to continue operation in your absence, identifying the most suitable successor, and transitioning to the new ownership as seamlessly as possible – all while avoiding any cause for conflict among your heirs.

An estate planning advisor with expertise in business transitions can help ensure that the process runs smoothly and your future successor and heirs are treated according to your wishes.

For a complimentary consultation with a Fuller Landau estate planning advisor, contact us today.


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