Individuals or spouses that own family businesses have an extra consideration when estate planning — succession of the business. Simply leaving a business to a beneficiary in a Will may not be the best and most tax-effective way to plan for the succession of your business to ensure its continuing viability. An experienced estate planning attorney can help you decide which strategies are best suited for your business to accomplish your goals.

If you have any interest in learning more, do not hesitate to mail intake@gcpc.com, or call 703-556-0411 to have a conversation about how estate planning may benefit your business, your personal life, and also provide an opportunity to create a legacy if that is something that may be important to you.

Estate Planning for Small or Closely Held Businesses

Estate planning when you own a business typically requires a bit more consideration and strategy than a simple Will. A basic Will or Trust is a good start, but a complete plan should also address tax-efficient strategies, planning for a disability, and transfer of business ownership to your successor. The most important pieces of your business estate plan will be your Will or Trust, indicating how your business should be distributed upon your death, and a Power of Attorney (“POA”) authorizing someone to manage business tasks and decisions in the event you are incapacitated.

Trusts can be a very effective way for business owners to plan for the succession of their business in a tax-savvy way. Utilizing a Trust also allows the business owner to appoint a trustee or co-trustees of the trust to share responsibilities. To avoid family conflicts relating to the business decisions of the business, the business owner can name a corporate trustee to handle business aspects and a family member to deal with HR aspects of the business. Another strategy is to gift business assets to beneficiaries. Careful planning allows for gifting of assets to take advantage of tax exemptions and reduce estate taxes. Life and disability insurance should also be considered as part of a comprehensive estate plan for business owners.

A POA is a legal document that authorizes one person to act on behalf of the person establishing the POA. In other words, the document creates a legal fiction allowing another person to stand in your shoes to take actions when you cannot, or simply out of convenience if you prefer someone else to do so. POAs can be narrow or broad depending on the circumstances and the amount of authority the individual wants to bestow. A POA can be helpful if an individual becomes temporarily or permanently incapacitated and unable to manage their affairs. Having a POA allows business and personal affairs to continue without delay and avoids the need to have the Court step in to appoint a guardian or conservator. A POA can give authority to manage financial matters, your business, collect or pay debts, and handle issues arising in daily life, as necessary. A POA also provides the convenience of allowing another person to appear on your behalf when you are too busy, traveling, or unable to be physically present for whatever reason.

Family-owned businesses also face the additional concern of avoiding family conflict. Family members may have different opinions about how to run the business or even about whether or not they want to be involved in the business at all. It’s important to discuss succession planning with your family and ensure your succession plans will go as you intended. For some family-owned businesses, it’s also important for the business to stay just in the immediate family, and not with spouses or other in-law relations. Without proper planning, it’s likely that at some point, some business ownership will pass to members outside of the immediate family, which can create even more issues if there is a later divorce.

If your business has multiple owners, you should also consider a buy-sell agreement or similar document, which will specify who can buy an owner’s share of the business and under what circumstances. A common provision in these agreements is the right for one business owner to have the first chance to buy out the exiting owner’s shares before the exiting owner is allowed to transfer ownership to another individual. These agreements can help ensure that business owners are on the same page about the future of the business and succession planning. The exact documents required for an effective succession plan depend on the type of entity the business is (ex. LLC, corporation, partnership, etc.). Different entities require different types of agreements to restrict ownership transfers. An experienced attorney can help you determine what makes the most sense for you and your business.

Intellectual Property and Royalties

Another consideration business owners may be faced with is in regards to intellectual property rights. Intellectual property includes names and images, symbols and designs (such as a business logo), and other artistic works. This intellectual property is usually protected through trademarks and copyrights, which may also generate royalties as income. Similar to other assets, intellectual property and royalty rights can be transferred to a Trust and passed down to beneficiaries.

Intellectual property rights are easily ignored when thinking of assets during the estate planning process, but this can create a hassle later on. Transferring ownership of intellectual property can require a little more work than transferring other assets since the transfer may involve contacting other agencies, such as the U.S. Copyright Office, so it’s best to consult with an experienced attorney to make sure that all transfers and necessary registrations are handled properly.

Contact Us

An experienced estate planning attorney can help you prepare and guide you through the process of protecting your wealth and possessions and also provide strategies to leverage your chosen legacy and your values during your lifetime. Estate planning attorneys at General Counsel, P.C. can guarantee that you’ll feel more confident about your future after you’ve made your estate plan or updated your existing plan.  We would welcome the opportunity to help you navigate the estate planning process. Contact us today at 703-556-0411, email intake@gcpc.com, or if you’re ready to commit to protecting yourself and your loved ones, simply contact us to schedule an appointment, to have a conversation about how we can help!