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Are you concerned about what will happen to your family owned business after your death? You want to ensure your family’s future is secured even after your death. For this purpose, estate planning for family owned business is crucial. An estate plan describes how your company assets are passed on to your family members in the most cost effective way as possible. The estate plan you create now can affect the accounts and finance your business substantially.
Here’s some estate planning strategies that you can use to plan for your estate accordingly.
Immediately after your death, you are deemed to dispose the entire capital property at fair market value. As a result, the liability of income tax is huge. It is also known as death tax. In such a scenario you can limit the death tax by using the estate freeze method. In this method, you transfer the assets to a younger generation. As a result, the value of these assets is frozen to the transferor as on the date of transfer. Furthermore, the amount of potential capital gain on death also gets frozen. Thus, you are able to estimate the potential tax liability on death and there is a better planning for payment of income tax.
Life insurance is one of the basic tools used for estate planning strategies. You can fund the potential income tax by purchasing the life insurance policy. If your insurance policy is properly structured, then any income tax occurring on the deemed dispositions of assets on your death can be paid without any sale of the assets. Therefore, you should get in touch with an accountancy firm providing you with tax related services to help you out.
Updating Your Will and Power of Attorney
While you start estate planning for family owned business, it is necessary that you keep an update of your Will or power of attorney. A Will is prepared so that in the event of owner’s death, the executors are provided with the power and authority to act as mentioned in the Will. Also, a properly developed Will can be used by executors to hold and operate the business after the death of the owner in a convenient manner. Thus, the business is passed on to the right person and it also minimizes the taxes through the use of capital gain exemptions, trusts and rollovers.
In the same way, small business owners should consider having valid powers of attorney for financial assets and personal care, during their lifetime in case they are unable to make decisions for themselves.
Drawing Up Partnership Agreements
Drawing up partnership agreements is useful when there are multiple people involved in the business. Such agreements helps to pre-determine what should happen to the business in case of death or retirement of one of the partners. For example, in the case of a buy-sell provision, it directs the surviving partners how to buy out the deceased partner’s share of business, the price to be determined and when the proceeds has to be paid.
These were some of the estate planning strategies that you can use for the benefit of your family members. Estate planning for family owned business or other small businesses would ensure that the ownership rights goes to the right person. However, the estate planning is a complex process and therefore, it is recommended that you take help of professional tax service providers in this regard. Want to secure the future of your business and family? Then start with your estate planning as soon as possible.