There is a great deal to consider when you are engaged in the process of estate planning, especially if your assets are diverse and existing in a number of different forms. It is difficult and near to impossible to expect the layperson to understand all the legal intricacies involved in a complex estate. This is why it is so important to consult with an estate planning attorney, because it is very likely that any investment that you make will yield significant rewards in the long run. Aside from having the necessary educational background, experienced estate planning attorneys have seen just about every scenario. As a result, they know exactly how to proceed once they evaluate the nature of your assets and digest the specifics of what you are trying to achieve with your estate.
This having been stated, small business owners, who are involved in partnerships, can find themselves in a challenging situation when they start to get serious about putting an estate plan in place. Many people who own part of a small business would say that their share is the most valuable asset that they have. But if you just arrange for your estate to assume ownership of your share, where does that leave your partner or partners? They may not feel comfortable if someone in your family was to take over your day-to-day role, and by the same token, your family may have no interest in helping run the business. If they were to sell your share to the highest bidder that too could place your partners in a situation that they would prefer not to be in.
This type of small business succession situation is often handled through the use of buy-sell agreements involving the purchase of life insurance. The two most common ones are the cross-purchase agreement and the entity plan. With the cross-purchase plan each partner takes out an insurance policy on every other. Should one of them die, the proceeds from the insurance policies are used to purchase this individual’s ownership share from his or her family. With the entity plan, the business itself purchases insurance on each co-owner, and if one of them dies the insurance benefits are used to buy that share from his or her estate, according to previously agreed-upon terms.
- Donor Advised Funds: Too Good to Be True? - September 15, 2021
- Changing “Irrevocable” Trusts Through Judicial and Nonjudicial Modification - September 8, 2021
- Reasons to Supplement Your Estate Plan With Life Insurance - September 7, 2021