Estate Planning as a Business Owner

While the importance of personal estate planning is often emphasized and many people draft a last will and testament or establish a trust for their loved ones, that’s not the only sphere that should be considered.

If you own a business, then estate planning will secure your company’s legacy as well as protect those connected to the business–key stakeholders and family members whose financial wellbeing are tied into it. In the event of your incapacity–or death–you want to make sure that your wishes are known and everyone’s financial security is protected.

When it comes to estate planning as a business owner, you should discuss your wishes openly with family members, beneficiaries, and an experienced trust or estate planning attorney.

Here are some important facets of estate planning as a business owner.


Transfer or Sell

In the event of your death, one important decision you need to make is whether to transfer ownership of your business to a beneficiary (usually a family member) or arrange for it to be sold on the open market. Make sure that you gauge the interests of potential beneficiaries before deciding to transfer ownership; handing over the reins to a child or other family member that doesn’t have the motivation or skill set to succeed is a risky endeavor. A better alternative would be to sell it to another, more invested family member before the business owner’s death.

Selling to another family member while the owner is still alive is usually done at fair market value. In return, a promissory note is drawn up, which is payable to the owner for the remainder of their life. In this situation, it’s wise for the owner to obtain a security interest–which ensures the promissory note will be paid–against the business assets. This is a safety net in case the family member is hit with a marital breakdown or financial difficulties. The owner may, alternatively, decide to offer the business to the family member as a gift in the event of their passing. The Will should then include a clause stating that any remaining amount outstanding on the promissory note will be waived when the owner dies.

The Question of Taxes

Owning a business means needing to think about taxes and how those will be handled in the event of your death. Owners pay capital gains tax on company shares, which is payable in two situations: in the event those shares are sold to a third party, or in the event of the owner’s death. There are some options to consider that should be discussed in-depth with the estate planning attorney.

For example, an estate freeze can reduce the amount of taxable capital gains of the owner’s estate and can allow the owner to take advantage of the lifetime capital gains exemption. This frees up successors to claim future growth. As part of responsible estate planning, a business owner should sit down and calculate the capital gains tax they are likely to pay in order to ascertain whether the estate will be able to cover it. Otherwise, the business may need to be sold, liquidated or other solutions explored.

Contractual Succession

Shareholders– whether they be family members of traditional business shareholders–hold a shareholders’ agreement. This document spells out the terms of business succession planning as is relevant to the company. Some things it should include:

  • What to do in case of death (Will remaining shareholders be on the hook for buying out the interest? Will life insurance cover a buy-out instead?)
  • What happens in the event of disability (If the disability is long-term, will shareholders need to buy out the shareholder‘s interest? Is an insurance buy-out possible?)
  • What happens with former spouses (in case of divorce or separation, will the owner’s former spouse or partner get shares in the business? Can they be bought out by remaining shareholders?)
  • What if business shareholders no longer see eye-to-eye about the future of the company? Will the business be sold–or is there a plan in place for buyouts?

As a business owner, there are many additional considerations and complex decisions to be made that will impact family members, shareholders, business partners, and even former life partners. It’s crucial to invest time with an estate planning attorney to get your business affairs in order. Having a solid plan in place will ensure that your loved ones are taken care of and that your business’ legacy will continue even after your death.

If you need help with your business estate planning needs, contact us and we would be happy to help with an initial consultation.  At Kalicki Collier, we have made the process as quick and painless as possible and we want to guide you through it with our expertise and experience!

Scroll to Top