Estate Planning for Business Owners

If you own a business, the estate planning process should include arrangements for what will happen to your company or ownership interest if you pass away, retire, or become incapacitated. Estate planning for business owners can offer numerous benefits, including solidifying ownership and management succession, protecting business value and wealth, and minimizing tax liabilities that come with ownership transfers.

An Arizona estate planning lawyer from Pennington Law, PLLC can help you build an effective estate plan that includes smart succession planning for your business. Contact us today for a free consultation.

Why Do Business Owners Need an Estate Plan?

When you’ve worked hard to build a thriving business, your company becomes your legacy. Having an estate plan that includes legal strategies for protecting business assets after you’re gone ensures that you leave behind a company that endures.

Some of the benefits of Arizona business succession planning include:

Protecting ownership and control of the business – For partnerships or closely held corporations, estate planning can ensure that business control remains among the partners. Tools such as buy-sell agreements and insurance plans can fund the buyout of departing owners’ interests.
Planning for incapacity – Business continuity planning can include having trusted managers or employees assume temporary control over the business if its owner becomes incapacitated due to injury or illness.
Ensuring management continuity – Succession plans can eliminate confusion about who will assume leadership of the company when its owner becomes disabled or dies.
Protecting business value and wealth – A clear succession plan for a sole proprietor’s business can help maximize the business’s value, even if it involves selling the company to a manager, employee, or strategic partner, by minimizing loss of business value due to departing employees, customers, or vendors.

Reasons to Hire an Arizona Estate Planning Attorney for Business Succession Planning

Business succession planning can involve complex legal and tax issues. The experienced estate planning attorneys at Pennington Law, PLLC can guide business owners through the intricacies of succession planning by:

Learning about the business structure and how reliant employees and managers are on its founder to keep operations moving
Discussing estate planning strategies to sustain the company during leadership transitions without disrupting or endangering relationships with outside clients and vendors
Drafting and helping owners execute the necessary documents to implement a thoughtful, proactive business succession plan
Working with owners regularly to review and update plans in response to changing circumstances

I Own a Small Business. Do I Need a Succession Plan?

A succession plan is important no matter the size of your business. Not only will it provide peace of mind, it can protect against unwanted or unintended ownership changes, ensure a smooth transition, protect the company’s financial security, and reassure stakeholders like employees, suppliers, and customers. If your small business is family-owned, succession planning can also reduce the chances of disputes or legal challenges over what should happen next for the company.

What Happens to My Business If I Don’t Have a Succession Plan?

When you fail to undertake business succession planning, your business may experience chaos if you become disabled, suddenly retire, or pass away. Operations could halt and important decisions might go unmade until a new leader is installed, which could jeopardize relationships and cause business instability. Estate taxes could also eat away at the value of the business if you die, forcing the sale of assets to pay the bill. Without a succession plan, you put your professional legacy at risk and endanger the wealth you earned and want to leave behind for your heirs.

What Estate Planning Tools Can Protect My Business?

Various estate planning tools can help you protect and preserve your business, such as:

Business continuity and succession plans – Business owners can develop a continuity or succession plan that designates who will assume management of the business in your absence. A continuity plan will also outline the steps that the new management and the business’s employees should implement to complete the succession, such as updating customers and vendors and reaffirming those relationships. Business succession plans ensure clarity and inform stakeholders about what they must do to ensure a successful transition.
Buy-sell agreements – Business owners or partners may adopt buy-sell agreements to facilitate management succession after an owner’s retirement, incapacity, or death. A sole proprietor may have a buy-sell agreement with a family member, top manager, or strategic partner to whom they want to leave the business. Partners may also use buy-sell agreements to ensure that a departing partner’s interest remains with the company.
Family limited liability companies (LLCs) – A family business may consider an LLC as an estate planning tool for business succession. The operating agreement can allow for a smoother transfer of management roles and ownership interests to future generations. An LLC also offers significant gift and estate tax advantages.
Life insurance policies – Businesses may consider purchasing life insurance policies for owners to fund buy-sell agreements. This way, the business does not need to use its cash or take out debt to repurchase a departed or deceased owner’s interests.
Advance directives – A power of attorney (POA) is a legal instrument allowing individuals to appoint someone to make financial decisions if they become incapacitated.

Other tools like trusts can also be useful in business succession planning. Consult a legal professional for advice on which strategies work best in your situation.

Minimizing Tax Consequences Through Strategic Business Planning

Careful business succession planning can also help minimize tax consequences, especially where succession plans involve tools such as buy-sell agreements that can trigger tax obligations. Succession and estate planning can also reduce the effect of other potential tax liabilities that may arise in business succession, such as gift or estate taxes.

Choosing Who Will Run Your Business in the Future

Finally, a business succession plan allows business owners to expressly designate the person(s) who will assume management responsibility. Succession plans avoid situations where legal ownership of the business falls to family members who have no interest in running it. For companies with more complex ownership structures, succession plans avoid leadership disputes or struggles between remaining owners or managers for business control. Designating who will run the business once you are gone can also reassure employees, customers, and vendors of the company’s stability and continued viability.

Contact an Arizona Estate Planning Attorney Today

As a business owner, careful estate planning can help you protect and pass on your life’s work. However, making these complex decisions and designing a succession plan can be difficult without an attorney’s help. An Arizona estate planning lawyer from Pennington Law, PLLC can discuss how to protect your business assets, maximize tax savings, and leave behind a lasting legacy for your loved ones. Call or contact us today for a free consultation.