Estate Planning for Business Owners

By Jim Hess, CEO, CPA

July 12, 2021

We are continuing our series on estate planning, this time focusing on business owners. While there are common elements that anyone would need to have, there are unique documents and planning that need to be considered for different situations. Let’s talk about something that is unique to a business owner as they plan for the succession of their business in the event of their retirement, departure, or death.

For the sake of this article, let’s assume that the business owner has family members involved in the business. (In situations where that is not the case, there will need to be other business transition plans made for a separating event.) If you have family members involved, and one or more of them have an ownership interest, you will need a well-crafted Buy-Sell Agreement to address the possibility of you no longer being involved in the business.

Your Buy-Sell Agreement should address these issues:

  • Who can purchase and hold stock in the company? Will it be limited to the family members, or could a non-family member be considered as a possible buyer for your shares?
  • Can family members that are not actively involved in the business purchase shares if you were to die? If not, how will that impact the value you will want to receive for your stock from your family members that are involved in the business?
  • Will all shares of stock carry the same rights and privileges?
  • How will the value of your stock be determined? Will the value be the same for all separating events, or will the value vary based on whether you died or just retired from the business?
  • How will the financing be structured for the purchase of your shares? Will you finance the purchase as the seller, or will the buyer have to obtain their own financing?
  • Should you obtain key-man life insurance to help with the financial transition of the business?

Please be sure to consult with both an attorney and CPA that are experienced in working with business transitions and Buy-Sell Agreements as you begin developing, or updating, your succession plan. There is no better gift to give those you love than to provide them with a well-thought-out and documented plan to guide them through a challenging business transition. Please reach out to our team if we can assist you in this vital planning.

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