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Estate planning may involve transferring business ownership

If you are a business owner, you might be thinking about how your business would live on after you pass away, knowing that there are tax implications and other matters to consider.

Transfer of ownership involves many details and establishing a succession plan is part of a good estate planning strategy.

Growing value

Keep in mind that your business may continue to grow and expand. Consequently, the value placed on it at the time of your death will be different than the value that exists when you begin to prepare your estate plan. Ultimately, your taxable estate will include the value placed on your business as of the date of your death.

Considering co-owners

You may have co-owners you must consider in your long-range business planning efforts. One option is to draw up a buy-sell agreement, which basically states that upon your death, the other owners will purchase your share of ownership in the business. This kind of arrangement also protects your associates by preventing any of your beneficiaries from unintentionally becoming owners.

Your succession plan

An estate planning attorney will tell you that to avoid probate and minimize taxes, you must structure the succession of a business in a precise manner. There are a few points to consider:

  •         Developing a plan that is in the best interests of your family
  •         Considering not only who will own the business but also who will manage it
  •         Timing the succession to take place during your lifetime

If you choose to make the transfer while you are still alive — around retirement age or thereafter, for example — you will be able to confer with your successor and also reduce the risk of your business being sold at a discounted price.

Establishing a trust

Setting up a trust may be a wise decision in terms of transferring business ownership. As your assets grow, you might want to think about a grantor retained unitrust. If you want to transfer the business during your lifetime and set up a source of income for yourself, you might consider a grantor retained annuity trust. These are among the options to consider when the time comes for you to put together a good business succession strategy.

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