If you have managed to build up a successful business you are most likely a person who knows how to get things done and that means you will probably have sorted out your will and decided how your family will be taken care of when you pass away.
However, one aspect of planning that can get overlooked is what happens to your business after you have gone and how it copes in your absence.
You can get some information about planning for this scenario from CommerceTrustCompany.com, for example, and you might also want to take a look here at some of the key points relating to inheritance and succession planning with regard to your business interests.
Are you planning on handing your business to the IRS?
Although the IRS is not in the habit of taking over the running of a private business when the owner is no longer around there are scenarios where you would be virtually inviting them to have a large portion of your business value in your absence.
The key issue here is probate, which any professional planner will tell you is something you want to avoid.
If you don’t plan what is going to happen to your business when you die you open up the prospect of letting the probate court decide how much in estate taxes your business has to pay.
This could wipe out a big percentage of the profits and assets that you have built up in the business and could prove disastrous for anyone who you want to take over running the company after you are no longer around.
The fundamental point you need to keep in mind is that as soon as your business starts to accumulate value and generate profits, this is definitely the time when you need to get professional guidance on transitioning ownership when you die.
There are various options open to you with regard to passing on your business and it would be a good idea to talk these through and decide which one is most appropriate to your circumstances.
Passing your business on without a tax liability
Your aim will be to pass on your business to a successor in the most tax-efficient way possible and one option to consider would be gifting the business.
This is not always the most suitable route and if you manage to remain within the current gifting threshold this action won’t generate a tax bill.
The only way you can gift your business is when you are still alive and can’t be done retrospectively.
When you know who will take over the business
Gifting is not always the best option as a future succession plan and if you definitely know who you want to transfer ownership to it might be better to consider creating a living trust.
Having this trust in place will ringfence your business from the IRS probate scenario and there a few other potential tax advantages too, but there is a cost implication attached to create this type of trust and it is often one of the more expensive methods to execute.
The fees might be considered justified if it keeps your business away from a hefty tax bill and it should allow the new owner to take over without too many delays or complications.
It is best to get a living trust created by a professional who has previous knowledge and experience of this arrangement.
Be wary of creating a partnership
One way of ensuring that the business continues without too many disruptions after your death would be to create a partnership so that someone is already in place and can simply take complete control once you are gone.
The obvious drawback to this tax-planning solution is that you are giving up some of your business while you are still alive and you could even encounter a conflict situation that could prove highly disruptive to your plans long before you pass away.
It should also be noted that some states have laws that would mean a partnership is dissolved automatically when one of you dies.
Again, get some professional guidance on the advantages and disadvantages attached to the idea of creating a partnership.
Create a buy-sell agreement
Another option would be to create a buy-sell agreement which is implemented automatically when a certain event triggers the agreement, such as the death of the owner.
If you happen to live in a state where partnerships are dissolved upon the death of one of you the buy-sell agreement wouldn’t protect you from the probate route, so it is something that needs to be clarified.
What about your children?
A lot of death and estate planning is centered around making sure your family are taken care of after your death and you could decide that you want your children to take over the business, even if they are too young at the present time.
One option would be to pass on the business to your spouse with the instructions that your children will assume ownership when they reach a certain age.
There is nothing stopping you appointing an interim custodian who will take care of your business after your death as long as you have the paperwork in place that lays out who and when will eventually get to run your business in the future.
What is your exit strategy?
You will likely have a target date for retiring and a plan in place for funding that retirement and there should be the same level of detailed planning when it comes to deciding what happens to your business when you are no longer around.
An exit strategy is not just about having a plan that deals with retirement or selling the business to a third party, it is also about knowing what happens when you suffer the ultimate exit.
You don’t know what this date is going to be which is a compelling reason for making sure that all of your financial and business affairs are taken care of as soon as possible.