CA Estate Planning Blog

Monday, May 18, 2015

Protecting the Assets of My Family Owned Business

What Can I Do to Protect Assets in Our Family Business?

Proactive business succession and estate planning can help preserve your business interests and allow them to be passed on to loved ones. This type of planning will require some thought and the process should start with some honest discussions among family members. There are many issues to consider, as outlined by Fidelity Investments in the link above, and many ways to plan around these issues.  

One issue to consider is that of co-owners.  If you are one of multiple owners, you could create an agreement allowing one owner's interest to be purchased by the fellow owner(s) upon death. This buy-sell agreement allows you to ensure that your family members do not unintentionally become owners. As part of a contract, the owners must agree on the formula to put a value on the ownership interest at the time of death. Life insurance proceeds could be used to pay for the deceased’s share of the company if family members wish to retain an interest. 

You may not want to run your business forever. If you want the business to outlast you, but you wish to remove yourself from the management of it, you need to make plans for who will run the business.  Even if you plan on selling your business, if circumstances force you to sell without a viable management team at a less than favorable time, you may get much less value for your business. Exiting management, allowing others to take over and then selling at a time when your company is worth more is something you should consider when engaging in this type of planning.

The issues of taxes and probate should always be considered in business succession planning.  One means of transferring your business ownership to your children, while keeping some income, is creating a grantor retained annuity trust or grantor retained unitrust. These trusts allow you to make large gifts to others while avoiding the gift tax.  If the value of the business increases during the term of the trust, the appreciation will not be subject to estate taxes. These methods may make the most sense if your business is doing well and growing rapidly. 

The family limited partnership or a family limited liability company is another option that you may want to consider. You could create a limited partnership to hold your business assets. Some limited partnership units could be transferred to your successors, thereby removing them from your taxable estate. 

If you live in Orange County, California or the surrounding areas and have questions or concerns about protecting your business assets and how they may be passed to others, contact the estate planning, business succession and asset protection lawyers at OC Wills & Trust Attorneys. Call today at (949)288-3598 for a consultation.


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