If you have a family-owned business, you may have a somewhat complicated estate planning situation on your hands. Fortunately, there are solutions that can be implemented if you work with an attorney from our firm.
We take our relationships with our clients to heart, and we understand the emotional value of the family business. You can rest assured that we will go the extra mile to make sure that your estate plan will be ideally constructed to bring your legacy goals to fruition.
Let’s say that you own a very popular restaurant, and your son start working in the family business after you graduated from culinary school. You parlayed your success into multiple locations, and he has risen to the position of general manager.
Your son has worked hard to help you grow the business, and you are going to leave business to him when you pass away. However, you want to leave equal inheritances to your other two children.
Under these circumstances, inheritance balancing will be a priority, and you can use life insurance to accomplish this goal. You simply make your other children the beneficiary’s life insurance policies with payout amounts are equal to the value of the business.
An irrevocable life insurance trust (ILIT) can be part of the plan, and if you have estate tax concerns, this type of trust can help you mitigate the exposure.
Family Limited Partnership
A family limited partnership is a business structure that can be useful for people that operate family-owned businesses. If you convey your business into a family limited partnership you would be the general partner, and you would have sole decision-making authority.
Family members that are added would act as limited partners. You could distribute ownership interest to the limited partners, and in this manner, you can gradually facilitate the transition. This you would be the decision-maker, you would still maintain absolute control of the business.
This is another device that can be used to reduce estate tax responsibilities if you take the right steps along the way.
Succession planning for family members that are partners in a small business could be facilitated through the utilization of a buy-sell agreement. With the agreement called the cross-purchase plan, the partners would determine the value of the ownership interests.
The individuals would take out life insurance policies on one another that would payout an amount that is equal to the value of an interest in the business. After the death of the partner, the proceeds would be used to by their share from their estate.
There is another type of buy sell agreement called the equity purchase plan. With this plan, the business entity would purchase the life insurance. It should be noted that you can use this type of agreement to facilitate exits for retirement or new beginnings.
An estate plan for an individual that is running a small business with family members should include an incapacity planning component. Sadly, a significant percentage of elders become unable to handle their own affairs eventually, and accidents and illnesses can strike at any time.
You can name someone to manage your financial affairs if it ever becomes necessary in a durable power of attorney for property. If you have a trust, you can name a disability trustee in the trust declaration.
Advance directives for health care should be added to account for medical decision-making. You can use a living will to state your life support preferences, and you can empower a medical decision-maker in a durable power of attorney for health care.
The Health Insurance Portability and Accountability Act (HIPAA) prevents doctors from sharing information with anyone other than the patient. Your plan should include a HIPAA release to give your health care agent access to your medical records.
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We are here to help if you are ready to work with a Memphis, Tennessee estate planning lawyer to develop an estate plan as the owner of a family business. Though our physical location is in Memphis, we have attorneys are licensed in Arkansas and Mississippi, so we have a wide reach.
You can schedule a consultation appointment if you give us a call at 901-763-2500 or 866-997-6325 or fax us at (901) 763-2525 and you can use our contact form if you would prefer to send us a message.