Most people in San Diego who own and operate a family business are too busy running the company to give much thought to what will happen to the business after they die. An owner's preoccupation with the present is understandable, but continued inattention to preserving the business after the founder dies or retires is an invitation for disaster. A forward-looking estate plan can ensure that the business will pass to the founder's children, or other heirs, with a minimum of conflict and a significant savings in federal and state taxes.
The first advantage of an estate plan that specifies how the ownership of the business will be passed from one generation to another is the avoidance of intra-family conflict. A detailed estate plan can settle all questions of ownership transfer long before the founder leaves the scene. Second, the failure to arrange for the transfer of ownership via a will or trust may leave the founder's estate open to unexpected gift or estate taxes. Most businesses do not possess enough liquid capital to pay such taxes, and the imposition of such taxes could deal a fatal blow to the enterprise.
A detailed estate plan can also provide direction for dealing with directors and shareholders outside the family. If the business is owned by several individuals or other entities in addition to the decedent, an estate plan can help direct management of the business by the surviving owners. An estate plan can also provide for the purchase of the decedent's ownership interest by the entity or other owners, thereby resolving successorship issues and providing liquid assets for the founder's heirs.
All small business owners should give immediate consideration to drafting an estate plan that will address the future of the business. A lawyer who practices in the field of trusts and estates could provide a great deal of helpful advice that can save the business thousands of dollars in unexpected and unnecessary taxes and expenses.
Source: QuickBooks Resource Center, "Estate Planning for Family Business Owners," accessed on Mar. 7, 2017