"In the event of your untimely demise, the government slaps an estate tax or death tax on your business and reduces the worth of your business by 50%."
The Huffington Post says in "5 Things Estate Planning Can Do for You and Your Business," that co-owners, family members, and ex-spouses can suddenly come out of nowhere to claim some of your successful business. Your company is reduced to nothing in less than a year. However, proper estate planning protects your business in case there are unexpected circumstances.
Estate planning can be used by business owners to avoid unfortunate events and to prevent seizure and depreciation of the business assets. This can decrease the stress and hassles that occur immediately after you die. Here are some good estate planning ideas to help your business.
- More options for your business. Solid estate planning gives you the option of a buy-sell agreement. If your business has one or more co-owners, this agreement ensures that upon the death of any owner, the interest of the deceased is automatically purchased by the other owner(s). The beneficiaries of the deceased owner, such as the spouse, children, or other family member won't unintentionally become owners. This strategy can alleviate some stress in an already stressful situation, immediately after the death of an owner or part owner of a business.
- Guarantee the longevity of your business. Sole proprietors, small businesses, and big companies all want to pass their enterprises to future generations to keep their legacies alive. Estate planning can ensure the longevity of your business with a business transition plan.
- Minimize taxes. A business owner can transfer business assets to his or her children and retain a source of income by establishing a grantor retained annuity trust (GRAT). This will help make sure that when business assets grow over time, the appreciation in equity and value of your business will not be hit with huge tax bills.
- Succession planning for your business. Good estate planning will ensure that your business is preserved and operating the way you'd want it to run. Any issues in the transfer of management and ownership when you're gone are conducted effectively with wise estate planning.
- Plan for the future. A good succession plan for your business could take several years to create, so start early. This can help you see the bigger picture for your business and present new ideas.
Reference: Huffington Post (March 31, 2016) "5 Things Estate Planning Can Do for You and Your Business"