Estate Planning for Small Business Owners
Estate Planning for Small Business Owners in MassachusettsRunning a small business comes with numerous challenges, and one often-overlooked aspect is estate planning. Many small business owners don't have a plan in place for what happens to their business if they pass away or become disabled. This oversight can have significant consequences, especially for those who play a central role in the day-to-day operations of their business. Fortunately, there are steps you can take to secure your family's financial future and ensure your business continues to thrive even in your absence.
|
We're Here to Help.OR
|
Choose the Right Corporate Entity
If you haven't already done so, incorporating your business is crucial. For sole proprietors or those doing business under a different name (DBA), business assets are considered personal assets, which can lead to liability issues during your lifetime. It can also complicate the process of selling or passing on your business in the future.
For example, consider a landscaping business with assets such as vehicles, equipment, funds in a bank account, money owed by customers, customer lists, and the business's name and reputation. Without incorporation, all these assets become part of your estate if you pass away, making it challenging for your heirs to handle the business's future. However, if your business is a corporation or an LLC, the assets belong to the entity itself, simplifying valuation and transition processes.
For example, consider a landscaping business with assets such as vehicles, equipment, funds in a bank account, money owed by customers, customer lists, and the business's name and reputation. Without incorporation, all these assets become part of your estate if you pass away, making it challenging for your heirs to handle the business's future. However, if your business is a corporation or an LLC, the assets belong to the entity itself, simplifying valuation and transition processes.
Consider a Separate Life Insurance Policy
The death of a business owner can create challenges in finding the right person to take over the business, often due to financial constraints. Key person life insurance policies can address these issues. By naming the business as the beneficiary, it provides funds for hiring new leadership. Alternatively, you can name a business partner as the beneficiary and sign a buy-sell agreement, ensuring a smooth transition of ownership.
Establish a Comprehensive Estate Plan
Having a will is essential, as it allows you to specify who will inherit your assets. However, a standard will may not align with the unique needs of your business. While leaving personal assets to family members may be suitable, transferring the responsibility of running your business may require a more tailored approach. Collaborate with an estate planning attorney to create a document that clearly outlines your wishes. Additionally, consider having a durable power of attorney in place to enable others to make decisions on your behalf if you become incapacitated.
Understand Your Estate Tax Liability
In Massachusetts, if your taxable estate is valued at $2 million or more, your estate will be subject to Massachusetts estate tax. This includes your life insurance, retirement savings, primary residence, and your business's value. Small business owners often find themselves facing estate tax liabilities, even if they feel financially strained.
A well-thought-out estate plan can help minimize or entirely avoid estate tax. If you're married, you can create trusts that allow tax-free asset transfers to your spouse. Implementing a gifting strategy enables you to gradually move assets to your heirs while you're alive. Explore available valuation discounts for closely held businesses, considering factors such as the lack of freely traded shares and non-controlling interests. Conducting a business valuation as part of your succession and estate planning can provide clarity for inventorying your estate and tax planning.
A well-thought-out estate plan can help minimize or entirely avoid estate tax. If you're married, you can create trusts that allow tax-free asset transfers to your spouse. Implementing a gifting strategy enables you to gradually move assets to your heirs while you're alive. Explore available valuation discounts for closely held businesses, considering factors such as the lack of freely traded shares and non-controlling interests. Conducting a business valuation as part of your succession and estate planning can provide clarity for inventorying your estate and tax planning.
Special Considerations for the Family Business
Multi-generational family businesses and businesses intended for succession to children require additional planning. Ensure that your estate plan addresses equitable distribution among multiple children, especially when only one intends to take over the business. Assess your child's strengths and weaknesses in running the business and consider additional training or experiences to prepare them adequately.
Don't Overlook the Business Plan
Succession planning involves more than determining who will lead the business after you. It's also about ensuring the business can operate independently of you. Document your financial plan, cash flow, revenue projections, and operational procedures. Clearly outline your organizational structure and the critical responsibilities of each role within your business. These steps will not only help you manage your business effectively now but also facilitate a smooth transition in the future.
Meet Our Estate Planning Lawyers
Emily Smith-Lee is the owner and founder of slnlaw. She is a 1996 graduate of Boston College Law School. She was previously a partner at the Boston office of a large international firm, where she worked for thirteen years before starting the firm that became slnlaw in 2009. She has been recognized as Massachusetts Superlawyer each year since 2013, and in 2018 earned recognition as one of Massachusetts Lawyers Weekly's Lawyers of the Year.
Jenna Ordway: Jenna is a 2013 graduate of Quinnipiac Law School, and also earned an LLM in Taxation from Boston University in 2015. She has been affiliated with slnlaw since 2011, first as a law clerk and then as an attorney. Jenna has been recognized since 2019 as a "Rising Star" by Massachusetts Superlawyers. Jenna wrote a book on estate planning: The Road to Peace of Mind: What You Need to Know About Estate Planning. Jenna has helped many individuals and families with planning to protect their legacies and loved ones, and planning for the future and succession of their businesses.
Sharleen Tinnin: Sharleen is a 2010 graduate of Northeastern University School of Law, and earned her LLM in estate planning from Western New England Scool of Law in 2016. She has been with slnlaw since 2023. Prior to joining slnlaw, she worked with King, Tilden, McEttrick & Brink, P.C. on complex civil litigation matters. She previously worked for the United States Department of Justice, and received an "Excellence in Justice" award in 2017. Sharleen has helped many clients with planning for their legacies and their future, and navigating the probate process in Massachusetts after the death of a loved one.
How We Can Help
Estate planning is essential for small business owners in Massachusetts, especially those with families and business interests to protect. By taking proactive steps to secure your business's future, you can ensure a seamless transition, protect your family's financial well-being, and leave a lasting legacy. Consult with an experienced estate planning attorney to tailor a strategy that aligns with your specific goals and safeguards your business for generations to come. You can start by using the button below to schedule a free information call, or simply give us a call at 781-784-2322.
|
|
|
|
|
