You should work with an estate planning lawyer to put a plan in place because of the personalized attention that you will receive. Contrary to the belief of some people, it is not necessarily a matter of drawing up a will and hoping for the best. There are different ways to facilitate asset transfers, and there are other considerations.
Each situation is different, and there are various approaches that can be taken based on the circumstances. The right way to proceed for one person may not be appropriate for the next. When you engage legal counsel, you will become apprised of your options, and you will receive recommendations.
With this in mind, we will look at estate planning for small business partners in this post.
Business Succession Planning
The nature of the partnership is part of the equation when you are planning your estate as a business partner. If it is a family business, you will probably approach it differently than you would with a purely business partnership. There is also the matter of the importance of your direct personal involvement in running the business.
We can’t get into every possible scenario here, but we will look at it from a general perspective first, and we will keep it simple. Let’s say that you have one partner, and you are friends, but it is a business relationship. From an estate planning perspective, what happens to your share of the business if you predecease your partner?
Your estate would possess the ownership interest, but what happens next? If it is sold to anyone that comes along, your partner would be forced to deal with the outcome. And of course, you would be in the same situation if your partner dies first. Plus, there is the matter of liquidity that can be distributed among multiple inheritors.
In a situation like this, you can use a buy-sell agreement called the cross purchase plan. First, you and your partner determine the value of the business shares. After that, you take out life insurance policies on one another with proceeds that equal the value of a share.
When one partner dies, the proceeds are used to purchase the deceased partner’s share from their estate. In this manner, the survivor can continue to run the business and make all the decisions independently. Meanwhile, there is liquidity that could potentially be divided among multiple heirs to the estate.
Inheritance Balancing
Let’s look at another dynamic that could apply to a family business. If an owner is going to be leaving the business to a particular adult child, what about the rest of their children? In some cases, the business is the most valuable asset that will be part of the estate. This can present an estate planning challenge.
It can be addressed through the utilization of a straightforward inheritance balancing technique. The business owner can take out insurance policies that are equal to the value of the business. Their other child or children would be the beneficiary or beneficiaries. When the time comes, the insurance proceeds would be distributed, and the business would be transferred to the child that will be running it.
Attend a Complimentary Seminar!
We conduct seminars on an ongoing basis that cover estate planning and nursing home asset protection. There is no charge to attend these sessions, so this is a great way to invest a little bit of spare time.
You can see the dates if you head over to our seminar schedule page. When you identify the session you would like to attend, follow the instructions to register so we can reserve your spot.
Ready to Act?
If you have already learned enough to know that you should work with a Glastonbury or Westport, CT estate planning lawyer to develop your plan, there is no time like the present. You can send us a message to request a consultation appointment, and we can be reached by phone at 860-548-1000.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
- Is Estate Planning Only for the Rich? - January 19, 2023
- How Do You Plan Your Estate When You Have a Business Partner? - January 5, 2023
- Why It’s Important to Plan Your Estate Now - December 22, 2022
