Estate Planning for Small Business


Estate planning is very important for small business owners. For most small business owners, a large portion of their wealth and income is invested in the family business. The success of the family depends on the business being transferred to the children or being sold outside the family for a good price. Either way, advance planning is required.

First, the family must know what type of business is involved. Some businesses are owner dependent (often a personal service small business). These businesses are often professional firms and founded and managed by a single individual owner. These can be incredibly profitable for the owner as less effort and funds are spent on management and marketing. Often, not much work is made to develop a separate management team to run the company without the founder.

An owner dependent business can end in three ways. Death, sale, or winding up.

  • Upon the death of the owner, the business (which is often highly dependent on the owner) becomes worthless. In a sudden death, the clients may leave without engaging the new owner. The IRS may attempt to impose an estate tax on the value before death. To minimize this, a CPA and estate plan attorney should be engaged long before then.
  • An owner dependent business can also be sold. Because the business is highly dependent on the owner’s effort, advance planning is often required. A CPA, business broker, and estate planning attorney can help. The new owner can keep the previous owner on payroll as an employee or consultant to keep the clients with the new firm. The business can be sold to outsiders or can be kept within the family ownership but with outside management to ensure longevity and continuity. An example of this is the Ford Motor Company which is publicly traded but controlled by the Ford family.
  • An owner dependent business can also be wound up (that is to say, closed down). Owners often do this as part of a slow phased retirement. This requires advance planning as well because it may take years for the existing clients to be serviced. At the end of this time period, tail insurance will often be required so the owner will be covered even after the business no longer exists.

There are many options to pass down a small business. A team of skilled estate planning attorneys, CPAs and other professionals can help.

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David Seto - Bankruptcy and Disability Lawyer


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David Seto



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