Business Owners and Estate Planning: Special Concerns

Estate planning for business owners offers numerous opportunities for lifetime transfers to move value and future appreciation out of the taxable estate. An article from The National Law Review, “Estate Planning for the Business Owner, Part 1: The Business Owner as a New Client,” explains the information an estate planning attorney needs to know when helping a business owner create a plan addressing their business and personal assets.

First, how is the business structured? Is it a partnership or wholly owned by the founder? If it includes real estate, is the real property owned by the business or a separate entity? If more than one legal entity owns the business and its assets, all of those entities need to be considered when creating an estate plan. Some entities also have restrictions on their ownership, so this may need to be examined.

Are the proper business agreements in place already? This includes shareholder and operating agreements between equity owners. If the business is a corporation, are bylaws, limited liability companies, or partnerships in place? These may impact transfers of equity.

When was the last time a business valuation was performed? Income statements and balance sheets must be reviewed to create an estate plan. The estate planning attorney may benefit from meeting with the accountant.

Understanding the cash flow from the business is an integral part of building an estate plan. Does the business owner take a salary? Are net profits disbursed to equity holders at the end of the year, or are they plowed back into the business?

Is the business a new one, a family business passed down from many generations, or is it nearly time for the owner to retire? The stage of the business and projections for its future will have a major impact on the owner’s estate plan.

Finally, is there a succession plan? If there is one, the estate planning attorney will need to review it to ensure that the estate plan dovetails with the plan for the future. If there is no succession plan, this needs to be addressed.

Reference: The National Law Review (April 18, 2024) “Estate Planning for the Business Owner, Part 1: The Business Owner as a New Client”