Business Estate Planning

To enjoy the fruits of their labor after retirement, or to best benefit the loved ones they may leave behind after death, successful South Carolina entrepreneurs often plan for their departure from business as much or more than they may have planned when originally entering into it. The following issues, therefore, should be considered.

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If you own shares in a closely-held corporation, are fellow shareholders in the corporation at risk for being sued for any personal debts they cannot pay?  

If you own a business and die unexpectedly, do you know who will continue to run your business?  

If you die unexpectedly and have partners, fellow shareholders, or fellow members, can you be legally certain that they will pay your family a fair price for your part of the business?

If you have ownership interest in a business and currently have a buy-sell agreement, do you know if it is well prepared?

If you currently have ownership interest in a business and use a buy-sell agreement, is your buy-sell agreement adequately funded?

If you currently own a business with others, do you know how the price of any departing owner’s interest will be determined?

If you currently own a family business, do you have a management succession plan in place?

If you own a business that you intent to pass to your heirs, have you considered the impact of estate taxes on your business?  

If you have a family business, have you planned how to transfer such a business?

If you have a family business, are you willing to make gifts of interests in the family business to your children or trusts for their benefit, if you can maintain control?

If you presently own a business, are you aware of the methods used to value your business interest for estate tax purposes?

If you presently own a family business, are you aware of the use of family limited partnerships?

   


If you own shares in a closely-held corporation, are fellow shareholders in the corporation at risk for being sued for any personal debts they cannot pay? back to top

If the shares of a fellow shareholder are seized by creditors who have obtained judgment against such shareholder, you may find yourself dealing with a new and unforeseen party with rights in the corporation. A buy-sell agreement should always be considered. However, a limited liability company or limited partnership may provide even more business asset protection in this area than a corporation.


If you own a business and die unexpectedly, do you know who will continue to run your business? back to top

If you own a business that you intend to have survive you, you should know who will continue to run your business if you die unexpectedly. Business succession planning is a very complex area of law. It involves accounting, insurance for liquidity purposes, investment advice, and an estate planning attorney. A durable power of attorney for business matters is strongly recommended for all sole proprietors.


If you die unexpectedly and have partners, fellow shareholders, or fellow members, can you be legally certain that they will pay your family a fair price for your part of the business? back to top

If you have ownership interest in a business, you should consider using a mechanism such as a buy-sell agreement to ensure that your family is treated fairly by your partners, fellow shareholders, or fellow members, should you die unexpectedly prior to selling out your ownership rights in the company. Buy-sell agreements like insurance contracts are not part of your probate estate.


If you have ownership interest in a business and currently have a buy-sell agreement, do you know if it is well prepared? back to top

If you use, or plan to use, a buy-sell agreement with fellow owners in a business, the buy-sell agreement should provide certain triggering events which require the remaining owners to purchase the departing interest. These events should include at least death, disability, incapacity, bankruptcy, loss of professional license, failure to properly carry out the owner’s expected duties, and retirement. The agreement can be voluntary or mandatory.


If you currently have ownership interest in a business and use a buy-sell agreement, is your buy-sell agreement adequately funded? back to top

If you currently have ownership interest in a business and use a buy-sell agreement with fellow owners in a business, you need to make sure it is adequately funded. Funding the buy-sell agreement can be done by life insurance, by installments, a sinking fund, or cash from borrowings. The safest method is life insurance. Generally, life insurance purchased by a business on the life of an individual, where the business is the beneficiary of the policy, is not included in the deceased individual’s gross estate.


If you currently own a business with others, do you know how the price of any departing owner’s interest will be determined? back to top

If you currently own a business with others, you should be aware that the most important part of determining the price of a departing owner’s interest is determining the value of the interest. Generally, this can be done by appraisal, by book value, by a multiple of annual earnings, by replacement cost of hard assets, or as agreed upon annually, for example. The appraisal method or agreeing annually may be subject to the least manipulation.


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If you currently own a family business, do you have a management succession plan in place? back to top

Most family businesses do not have a management succession plan. But to maintain a viable business, a realistic determination of who is capable of running the business after you retire must be made and a succession plan put in place.


If you own a business that you intent to pass to your heirs, have you considered the impact of estate taxes on your business? back to top

If you currently own a business that you intend to pass to your heirs, whether in whole or part, to increase the probability of success for the business after the business is transferred, the effect of estate taxes must be taken into account. Often, business owners have a significant portion of their net wealth tied up in their business. This can cause serious liquidity problems when estate taxes are due


If you have a family business, have you planned how to transfer such a business? back to top

If you have a family business, you should be aware of the fact that transferring a family business is an extremely time sensitive matter. Whether you plan to transfer your business during life or at death, the method chosen to effectuate the transfer will have significant consequences. Transfers can be effectuated through the use of trusts, outright gifts, or through a will. Early planning makes it easier to minimize the estate and gift tax consequences.


If you presently own a business, are you aware of the methods used to value your business interest for estate tax purposes? back to top

If you presently own a business, you should be aware of the methods used to value your business interest for estate purposes. The value of your business interest does not necessarily equal the value of the underlying assets owned by the business. Various discounts and premiums are assessed on the business interest. For example, common discounts include lack of marketability and lack of control. A premium is assessed for owning a majority of the business. Estate planning attorneys have devised strategies to take advantage of valuation discounts and avoid the assessment of premiums.


If you presently own a family business, are you aware of the use of family limited partnerships? back to top

If you presently own a family business, you might wish to be aware of the fact that family limited partnerships have become one of the most favored planning vehicles in the estate planning world. In addition to providing flexible ways to plan for the transfer and continuity of a business, family limited partnerships generally utilize aggressive discounting techniques to minimize estate and gift taxes

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