Secure Your Family Business Legacy

As a business owner you’ve worked tirelessly to build and develop your company. To ensure its continued success, you want to plan for the transition of your enterprise to the next generation. Estate planning for business owners is a multifaceted consideration because it encompasses issues involving corporate, tax, estate and even insurance law. To ensure your wishes are met and maximize the value of your legacy, certain strategies could be considered. For example, the following methods are often considered:

Multiple Wills to Avoid Probate Fees: Strategic planning can significantly benefit the heirs by reducing taxes and fees that would otherwise be imposed on the estate. Consider taking advantage of such strategies as creating multiple wills, which may reduce probate fees on the business owner’s demise.

Business Valuation: The valuation of a business provides a fair market value of the business, which is essential for effective estate planning. A clear understanding of the business value helps the owner make an informed decision about asset distribution within his or her estate plan. A fair and balanced distribution of the business among beneficiaries minimizes potential disputes.

Implement Estate Freeze: An estate freeze lets a business owner transfer the future growth of the business assets, typically shares in a company, to other persons. These could be children, grandchildren, or even key employees of the business owner. By doing so, the business owner defers the payment of tax until the assets are eventually sold or transferred by the new owners. This is because the beneficiaries gain ownership of future appreciation in the asset value. Meanwhile, the business owner can retain control and income from the assets at their current value.

Life Insurance: A corporation can be a beneficiary of a life insurance policy. A business-owned life insurance policy may provide funds to cover taxes owed on the deceased owner's shares. This in turn helps lower a financial burden on the business or prevent the sale of personal assets. The life insurance proceeds are not taxable to the corporation once received. Another advantage is that the proceeds are added to the company’s capital dividend account, which can then be distributed as a capital dividend to the shareholders tax-free. It should be noted that the proceeds added to the capital dividend account are net of any adjusted cost basis. The insurance company determines the adjusted cost basis of the policy (generally by subtracting the annual cost from the premiums). Although premiums are not deductible, a corporation can finance the payments to help safeguard company's future.

Agreements and Contracts for a Smooth Transition: Sometimes a corporation may have family member shareholders that are not actively participating in the business. For businesses with multiple owners, a shareholder agreement is crucial. It outlines share ownership, transfer protocols, contingencies upon death, and dispute resolution mechanisms. Family contracts like prenuptial agreements may also be beneficial for protecting your estate and minimizing potential claims.