Estate Plan for Your Business

When it comes to coming up with an estate plan, your business should be an integral part of this plan. You need to make the proper arrangements so that your business will continue without you. Here are a few things to consider about estate planning for your business.

Valuing Your Business

One of the first things that you should do whatever you are planning your estate is value your business. Determining how much are business is worth is an essential step in the process. If you are going to sell your part of the ownership in the business, you want to know how much you should sell it for. You will also need to know how much the business is worth for estate tax purposes.

Cross Purchase Agreement

If you are the partial owner of a business with one or more other individuals, you should most likely set up a cross purchase agreement. This is an agreement that will take care of your portion of the business ownership whenever you pass away. If you die, the other owners of the business will automatically purchase your share of ownership. You will decide how much your part of the business is worth in advance and the other owners agree to pay that amount for it. You can also combine this type of agreement with life insurance to make it very simple. Each owner of the business is going to purchase a life insurance policy on the other owners. Whenever one of the owner dies, the life insurance policies will provide cash to the remaining owners. The owners can then use that cash to purchase the deceased owner's share in the business. This money will be tax-free and it will go directly to the estate of the deceased.

Estate Taxes

You will also need to take into consideration the estate taxes that your loved ones may have to pay. Your part of ownership in the business is worth a certain amount of money. This value will be counted towards your estate when it comes to totaling up the amount that you have. If the total value of your estate is over a certain amount, your beneficiaries are going to have to pay estate tax before they can get their inheritance. Every year, the government seems to change the estate tax exemption, so you will have to figure out what this exemption is when you start planning. 

Probate Issues

If you are not planning on selling your portion of the business to business partners, you need to have a a succession plan in place. This needs to be outlined in your will so that any confusion can be avoided. If you do not have a succession plan in place when you die, your portion of the business will go through probate court. This means that the probate court will be able to decide who should get ownership of your business.

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