Small business owners will have certain estate planning concerns that do not apply to people that do not work for themselves.
At the same time, some of the components are going to be the same for everyone. We can help you integrate all of the key elements when we work with you to devise your plan.
Asset Protection for Business Owners
When you operate a business as a sole proprietor, you are taking a risk, because there is no separation between your business and your personal property. If your business is the target of a lawsuit, your property would not be protected.
There is no reason to take any risks when relatively simple solutions exist. One asset protection structure that is highly effective is the limited liability company (LLC).
The LLC is a separate entity, so your personal property would be protected from creditors and most other litigants if they file an action against the business. However, if you personally and directly cause damages, you could be held liable.
If you are sued, the litigants would not be able to go after business assets unless a court issues a charging order, so there is two-way asset protection. It is important to understand the fact that you cannot use an LLC to protect assets after you know that you are being targeted.
In addition to the asset protection, there is another benefit. An LLC is a pass-through tax entity, so you can continue to claim your business profits or losses on your personal income tax returns.
A family limited partnership (FLP) is another commonly used asset protection structure that can be utilized.
The basic idea is the same as it is with a limited liability company. Property that is held by the partnership would be safe if any partner is sued. If an action is initiated against a business that is held by the partnership, property that is owned by the partners would be safe.
Wealthy families have to be concerned about the potential impact of the federal estate tax. There are strategies that can be implemented to transfer assets to members of a family limited partnership at a tax discount, and this is another benefit.
Small business partners are going to have succession and exit concerns, and they can be addressed through the utilization of a buy-sell agreement. With the agreement called the cross-purchase plan, the partners will get together to agree on the value of an ownership share.
Once this has been established, they take out life insurance policies on one another. The proceeds will equal the value of a share of the business. After the death of a partner, the insurance payouts will be used to purchase the deceased partner’s share from their estate.
There is also an entity purchase buy-sell agreement. It is based on the same concept, but the business entity buys the life insurance policies. A buy-sell agreement can also be used to give the partners the ability to exit the partnership, and there can be alternate sources of funding.
Standard Estate Planning
These are some of the things that small business owners have to think about, but they also have to cover the standard bases. A living trust will be the ideal asset transfer vehicle in many cases, and there are other types of trusts that can satisfy targeted objectives.
Incapacity planning is another consideration. You should execute a living will to state your life support preferences. Durable powers of attorney should be added to name representatives to make medical and financial decisions on your behalf if it ever becomes necessary.
Schedule a Consultation Today!
We are here to help if you are in the Burbank area and are ready to work with an estate planning lawyer at Oakley Law Group to put a plan in place. When you choose our firm, we will put you at ease from the start, and we will work with you to develop a custom crafted plan that ideally suits your needs.