There are an incredible number of matters to consider when planning for a smooth and successful transfer of a business once the owner dies. Some involve the owner’s current spouse. Certainly, the business owner’s offspring are important considerations, too. Should children receive interests? Should they be equal interests? Should certain children be placed in positions of authority and control? What about offspring who have no interest in participating in the business?
Subsequent marriages should also be addressed in an estate plan. The client should consider whether their children will be cared for if an estate is left entirely to a second spouse, and whether that even matters to them. It is imperative the estate plan is free of ambiguities so all parties understand the wishes of the deceased. An heir might not like the details of the estate plan, but if written properly, it should be foolproof.
Steps to take
The first thing an estate planning attorney needs to do for a small business client seeking to create an estate plan is talk with them to determine their goals, says Bradley B. Wrightsel, a partner with the Columbus law firm of Wrightsel & Wrightsel.
The initial pragmatic consideration, beyond how to pass a business on to family members once the owner dies is whether the client even wants the company to continue past their death. Maybe the owner wishes to have the business sold with sale proceeds being placed in their estate for distribution to heirs. Or donated to a favorite charity.
In addition to learning the owner’s desires for the business after they die, an estate planning lawyer should also understand the current ownership and structure of the company, says Wrightsel, a certified specialist in Estate Planning, Probate and Trusts.
According to Acker, not only are discussions between the estate planning attorney and business owner/client intrinsic to ensuring the estate plan accomplishes the client’s goals, honest dialogues between the client and their family are paramount, as well. Acker, who has been practicing estate planning law for 37 years, encourages frank conversations with family members about the business’s succession “so there are no surprises down the road.”
What’s most important, says Wrightsel, is the “estate plan for the small business owner is considered and coordinated with the owner’s goals for business succession.”
Matters to consider
There are several important matters to consider when planning for the future of a business once its owner has died. They include:
- A valuation of the company at the time of the estate plan’s creation, as accurately as possible;
- Whether the business will be sold or kept in the family; and
- If kept in the family, then a plan for the company’s transition must be established.
Determining the value of a business can be troublesome, says Acker. That’s because “you often have the added problem of illiquidity. Illiquidity may be a factor if the client’s estate will be subject to a state and/or federal estate tax. Also illiquidity can make it difficult to make equal distributions to next-of-kin, if not all are involved in the business,” he says.
Both lawyers agree that above all, no one should die intestate, meaning without a valid Last Will and Testament. Dying intestate allows the laws of the state where the person lived to determine who inherits what and, inevitably, a greater chunk of a person’s estate goes to taxes, rather than heirs.
“For the small business owner, the absence of an estate plan will mean that his or her interests in the business will pass as provided by law,” cautions Wrightsel.
If that warning doesn’t cause you to contact a qualified estate planning attorney to get your affairs in order, then perhaps Acker’s advice will. “If you want to create problems and disharmony for your family, don’t do any estate planning.”