Tag: Business Succession

Houston Business Lawyer: Succession Planning for Your Small Business is Crucial for its Survival

You have worked hard for the success of your small business, but have you thought about what will happen to it after you are gone? By engaging in Succession Planning, the small business owner can ensure that his or her wishes are followed should the unthinkable occur. Not only does this kind of planning make for an easier transition on those left behind, but it also saves money and can literally keep the business from failing altogether.

Your small business is a part of your estate, and just like your home and other assets, planning needs to be done for how it should be handled upon your death. You will want to go over your options with a qualified Houston wills and estates attorney and make them legal and binding through the proper documentation. Of course, you will also want to communicate with those individuals who will be charged with executing your wishes and keeping the small business running smoothly.

Unfortunately, the death of a small business owner can also spell the death of the business. Estate taxes can be so expensive that the business just cannot survive paying them. Within nine months of your death, as much as 50% of the business’ worth can be due to the IRS. It is pretty hard to imagine a small business surviving the loss of 50% of its value.

Laws like this play a role in the fact that small businesses do not typically survive through the generations. According to The Small Business Review, only about 30% of family businesses make it to the second generation, 12% to the third generation, and 3% to the fourth generation. Obviously, there are a number of factors involved, but the need to pay taxes and take care of other transitional costs create a significant burden in passing a business on to heirs.

By planning in advance, you can take advantage of Section 303 and Section 6166 of the tax codes. These breaks do things like limit taxes on your heirs’ stocks and allow for the estate tax to be paid over the course of 15 years, respectively. Of course, these tax breaks are best utilized when they are understood in advance and the small business owner has made plans for their implementation.

If you have questions about planning for the future of your family business, please feel free to give us a call at Hegwood Law Group: (218) 218-0880.

Don’t Use Your Will for Business Succession

A recent article from NJ 101.5, “Should you leave a business in your will?,” asks whether using a will for business succession may have estate tax consequences. That tax might have been substantially reduced or eliminated with good estate planning by parents who want to transfer a business to their children or other relatives. 8-3-2016

The federal estate tax exemption is $5.45 million per person this year, plus any state exemption amount. That means if the business is generating some decent revenue, there’s a good possibility that estate taxes could hit after the parents are gone.

Just a third of all family businesses make a successful transition to the second generation because many issues can create obstacles. For instance, the interest of one family member may be different than other family members.

As part of this process, you should identify the successors, the active and non-active roles for each family member, and the additional support from family members needed by the successors.

Small family-owned businesses frequently will transfer shares of the business during the owners’ lifetime to address transfer tax consequences. These transfers can be structured so that the owners will keep control during their lifetime.

Parents, speak with a qualified estate planning attorney to assist with wise succession planning. That way you can decide the most effective way to transfer your business without incurring unnecessary transfer taxes.

Reference: NJ 101.5 (June 15, 2016) “Should you leave a business in your will?

How to Divide Your Assets among Your Children

A recent post on cincinnati.com, "Tough task: Dividing assets after a death," asks this question: when it comes to passing assets to the next generation, how should they be divided? Most people believe it's fair to give equal shares to each child. But is that always the best solution or are there exceptions to that rule?

7-6-2016These decisions should be made only after you speak to a qualified estate planning attorney. He or she has the expertise to draw up the will and any other papers concerning bequests. Here are a few family situations where equal bequests are not appropriate.

  • Blended families. Divorce and remarriage can create families where some of the kids have one but not both parents in common, which means that decisions must be made about how to divide up the estate. In some cases, it's not in equal shares. You may factor in any bequests to kids that are planned by the other biological parent.
  • A child or adult with special physical or psychological needs. This includes those with behavioral disorders like alcohol or drug abuse. One solution is to consider a larger portion of the estate for their future care. You might also look into passing equal shares to each child but placing the share of the needy offspring in trust for his or her sole benefit with the intent to provide for that heir's long-term welfare.
  • Plain irreparable relationships. Here, the parents may intend to partially or fully cut that child out of their estate plans. In such a case, the parents should make it very clear in the will that this move was intended. If not, the slighted heir may claim that it was caused by an oversight, error, or loss of cognitive ability.
  • Succession in business ownership. Sometimes a child is active in the business, and it's easy to see who will take over the operation. But what about the remaining kids? Are there other estate assets to equalize the bequests? Or do they come on as silent owners, owning but not having control of running the business? There's no way around it; this is a tough decision that requires thoughtful planning.
  • When a parent needs home-health-care attention. The cost to family caregivers can be enormous for dedicated children or other family members who give up their careers, income and opportunities to become caregivers. The parent may want to reward them with a special share of the estate distribution. One solution is making them the beneficiary of a life insurance policy, payable to the heirs who have earned special consideration. This can leave them with a chosen amount of tax-free cash. To preserve harmony in the family, no one but the beneficiary of that policy needs to know, and if wishes change in the future, a change of beneficiary is easy.

Reference: Cincinnati.com (May 18, 2016) "Tough task: Dividing assets after a death"