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The Oakley Law Group

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Family-Owned Businesses
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Family-Owned Businesses

Estate planning for people that own family businesses can appear to be a bit challenging on the surface. This being stated, there are solutions that can be implemented to address any and all situations, and this is why legal assistance is invaluable.

Inheritance Balancing

Let’s say that your son has been helping you run your construction business for his entire adult life. You have one other child, a daughter that is a nurse, and she has never had an interest in the family business.

The construction company is very successful, and the business property is quite valuable. You want to leave equal inheritances to each of your children, but your son is going to assume ownership of the company.

Under these circumstances, inheritance balancing will be necessary. You may not be able to effectively balance the inheritances with property that is in your possession, but you can use life insurance to even things out.

Buy-Sell Agreement

Partners in a family business could use a buy-sell agreement to provide an exit strategy for the co-owners. The value of the respective ownership interests would be calculated, and the partners would agree to buy out any participant that wants to retire or pursue other opportunities.

From an estate planning perspective, the funding for the buyout can come from the purchase of life insurance. Partners would take out life insurance policies on one another that pay out an amount that is equal to the value of a share in the business.

The proceeds would be used to purchase the interest that was owned by the deceased partner from their estate, and the surviving partners would be able to carry on with autonomy.

Family Limited Partnership

A family limited partnership is a business structure that can be ideal for some family businesses. The anatomy of a family partnership starts with the general partner, who is the sole decision-maker. Members of the family are added to act as limited partners.

People will use these partnerships to pool their resources to establish and operate a business. The general partner will typically be the individual that has the largest ownership share.

If you have an established family business and you want to transfer ownership interests to your children, this can be done through the utilization of a family limited partnership.

There is also an asset protection benefit. Property that is personally owned by the partners would be protected if the business that is held by the partnership is sued. The reverse arrangement would be in place if any partner is individually sued.

Estate Tax Considerations

There is a federal estate tax in the United States that carries an eye-catching 40 percent maximum rate. Most people are not exposed to this tax, because there is a multimillion-dollar exclusion.

The exclusion is the amount that can be transferred before the remainder would be subject to the estate tax. There are family business owners that have property that is extremely valuable, even if they do not consider themselves to be among the financial elite.

This is the “land rich and cash poor” phenomenon. Your family could be forced to sell property to pay the estate tax, but there are steps that you can take to prevent this outcome.

Asset Transfers and Incapacity Planning

Every estate plan will involve the facilitation of asset transfers, and there are different approaches that can be taken. We can gain an understanding of your situation and make sure that you provide for each of your loved ones in the ideal matter.

Your plan should include an incapacity planning component. You can name a representative to make decisions on your behalf if it becomes necessary in durable powers of attorney.

We are using the plural because you can execute a durable power of attorney for financial matters and a durable power of attorney for health care. On the medical front, you should have a living will to state your life support preferences.

Take Action Today!

If you know that you should work with an attorney to develop an estate plan, there is no time like the present.

You can schedule a consultation at the Burbank, California estate planning office of the Oakley Law Group if you give us a call at (818) 937-2335. If you would rather send us a message, fill out our contact form and you will receive a prompt response.

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The Oakley Law Group

2600 West Olive Avenue, 5th Floor
Burbank, CA 91505
Phone: (818) 937-2335
Fax: (818) 450-3886

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Monday to Friday : 9:00am to 6:00pm PST

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