Estate Planning for Small Business Owners in Georgia
If you own a small business, your estate planning goals should include addressing matters relating to disposition of your business interest, as well as business succession and continuity of the business. The related documents in your estate plan can minimize business disruptions, provide the terms for disposition or continuity, and avoid the probate process and tax consequences for the business interest in your estate. If you do not plan ahead for the future of your business estate, continuation or disposition of the business after incapacity or death can present a myriad of complex legal and practical issues for your loved ones.
Small Business Succession, Continuity and Disposition Planning
An overwhelming majority of small businesses cease operations if the owner becomes incapacitated or passes away, due to lack of planning for continuation, disposition of business operations, and transfer of the owner’s interest. The owner’s loved ones and estate may face complicated and disruptive legal issues and tax consequences, and be unable to maximize the benefit and value of all the owner’s hard work in building the business. Engaging in small business succession, continuity, and disposition planning as part of the estate planning process avoids all these adverse consequences.
The most suitable estate planning solutions for a small business depend entirely on the nature and circumstances of the business. Family-owned businesses create different concerns than non-family-owned businesses do. But all small business owners need to consider how best to ensure a smooth transition or disposition in the event of incapacity or death. Some small business owners include retirement planning in their business succession plan as well.
There are three primary approaches to transitioning a business when the business owner is no longer involved in operations:
- Avoid a transition by closing the business and liquidating the assets
- Continue operations by selling the business to a third party, such as employees or an outside entity
- Perpetuate a family business by transferring the business to family members through sale, gifting, or a combination of those two methods
Regardless of which option is preferred for the business owner, an estate plan must include provisions and documents to facilitate accomplishing the ultimate goal, in order to maximize value for the business owner and estate and minimize issues during implementation. If the business is being transferred to family members, operational matters relating to the transition must be addressed, including:
- Identifying family members or employees who will assume responsibility for running the business, and the role of each person
- Determining the timing and method of transfer of legal authority to make and execute business decisions, which may require specific estate planning documents
- Arranging for the transfer of legal business documentation and records
For sale of all or part of a business to employees or an outside third party, the business owner may benefit from creating a buy-sell agreement that establishes the business valuation method and lays out the procedure for transferring or selling the ownership interest.
Estate Planning Considerations for a Small Business
In addition to addressing details that relate to operation of the business and the actual transfer of interest, a small business owner needs to consider two extremely important estate planning issues: estate and gift tax consequences and probate consequences.
There are special tax provisions that may help alleviate the tax burden for small business owners. Taking advantage of these opportunities requires planning in advance with an estate planning lawyer knowledgeable in the tax provisions applicable to all businesses and to small businesses in particular.
Avoiding probate should be an important goal for a small business owner. Without advance planning for transfer or disposition of a small business, the owner’s interest may be required to go through the probate process, which takes time and results in probate-related costs and expenses. In the meantime, the business may suffer due to the inability to continue operations. In addition, financial details become public information when property in an estate goes through probate.
With knowledgeable legal guidance, a small business owner can structure the estate planning documents relating to a business succession and continuity plan in a manner that minimizes taxes, maximizes the value of the business, and avoids the potentially disruptive consequences of probate. A sound plan can facilitate and expedite ownership transfer and legal authorization, so that the business can be sold or continue operations.
As a business owner, you alone are in the best position to determine how the future of your business should unfold when the time comes that you are no longer involved in business operations. Creating an estate plan that addresses all the legal and tax concerns relating to succession, continuity, and disposition is the best way to establish the framework through which your small business and your loved ones can capitalize on the years you spent establishing and building your business.
Learn More About Estate Planning for Small Businesses in Georgia
In our Cartersville estate planning practice at Asset Protection & Elder Law of Georgia, we help clients with all aspects of creating and maintaining an estate plan, including the important considerations and legal issues that arise for a small business owner. We provide legal services to clients throughout the communities northwest of Atlanta, including in Bartow County, Cobb County, Cherokee County, Gordon County, Floyd County, and Paulding County. Call us at (770) 382-0984 or contact us through our online form.
