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Three Additional Estate Planning Strategies for Small Business Owners

Weber Law June 5, 2018

Implementing the four strategies mentioned in our two previous articles about estate planning for small business owners establishes a secure foundation for the future of your business. There are a few more things that you can do to assure the future success of your company.

Did you know that business owners can purchase life insurance policies that can give specific people within the business the funds that they would need to be able to buy out the business owner’s shares in the company after they pass away? Many business owners can buy these policies, which can serve the dual purpose of ensuring that the people whom you wish to continue leading your company have the financial means to take ownership of it while providing financial assets to the beneficiaries of your estate as proceeds of that sale. What’s more, the proceeds of the life insurance policy that the policy’s beneficiaries receive are sometimes even tax-free.

Unfortunately, some businesses end up folding after the owner passes away because estate taxes create a barrier to their continued existence. Many business owners do not realize that estate taxes could be assessed in an amount equal to or over half of the total value of the business. Unfortunately, there is usually a time frame of only nine months from the date the business owner passes away for those taxes to get paid. These economic pressures cause many businesses to have to sell off many assets and in some cases even cease operations altogether. To give your business a strong chance of survival, work with a tax professional to reduce your business’s estate tax liability as much as possible. Also, ask your tax professional whether there are any tax breaks, such as IRS Section 303 or 6166 that could potentially apply to your business and your estate.

Another strategy that you could use to secure the future of your business while accomplishing a philanthropic objective is to have your attorney establish a charitable remainder trust. When you create a charitable trust, you can donate assets, including shares of your business to a trust that generates income to support organizations that support a cause that is dear to you while also providing income to the beneficiaries of your choosing, whether they be family, business partners, or both.

During its lifetime, a charitable remainder trust does three things. First, the trust is created and the person who established the trust, the settlor, puts a combination of stocks, cash, and assets like real estate and private business interests that are not publicly traded into the trust. When the settlor does this, they become eligible to a for a partial tax deduction. Second, the individuals that you have designated as beneficiaries of the trust receive income according to the schedule you have selected, whether it is annually, semi-annually, quarterly or monthly. You can also choose the amount of income earned, within guidelines specified by the IRS. Thirdly, after the term of years you established for the lifetime of the trust or when the last income beneficiary dies, the trust terminates, and the assets contained in it get distributed to the charitable beneficiaries that you designated when you established the trust.

Schedule your consultation with Kansas estate planning attorney J. Joseph Weber, P.A. today, by calling us. Our location in Wichita is open weekdays, from 8 a.m. to 5 p.m. We sometimes offer weekend or evening hours by appointment, and the opportunity to connect with us online through our website.