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Small business owners face a myriad of complex issues every day, including revenue, costs, expenses, employee issues, and profitability related to running a business. These problems are often magnified when business owners face the reality of illness and death. And the question of what happens to the businesses they worked so hard for after their death.
First and foremost, one of the most difficult problems is determining the realistic fair market value of a business. Especially when the primary owner of the business becomes incapacitated or dies. In my experience, business owners are usually not the best people to evaluate their businesses. They either overvalue the business or believe that their death will greatly reduce the value of the business. Therefore, having a business appraised by a certified appraiser is usually the best and most accurate choice.
The value of a business is an important factor in determining the total value of one’s property for property tax purposes, and is also an important factor with respect to the business as a whole and/or the beneficiaries who inherit the owner’s interest in the business. It is not uncommon for a business owner to have one or her two children working at their business and no children working at their business. Therefore, creating a fair estate plan for all involved depends on an accurate valuation of the business.
Additionally, if your business has multiple owners and/or shareholders or partners (depending on the type of business), you should strongly consider entering into shareholder agreements, partnership agreements, and/or sale and purchase agreements. What happens to the interests of each owner in the event of disability and/or death. Failure to have a contract that clearly defines the terms of the acquisition and how the business will be valued can have disastrous consequences. Few small business owners are happy to partner with a spouse and/or child of a disabled and/or deceased partner.
The type of entity created for your business also plays an important role for tax planning purposes. Is it a ‘C’ corporation or have you chosen ‘S’ corporation status for tax purposes? Or is it a limited liability company or a partnership? An “S” corporation has special requirements that must be met in order to maintain “S” corporation status. These requirements generally limit how and to whom shares in an ‘S’ company can be transferred. In addition, only certain trust entities may own shares of the “S” corporation. In this way, if the business operator is Company S, the important issue is whether to leave Company S shares to the beneficiary as they are or to entrust them.
Also, less consideration is given to the question of who is responsible for managing the business while the owner is disabled or if the owner dies. In many cases, one’s spouse is named as the executor of last will and/or trustee of the trust that owns the small business. But is the spouse the most competent person to manage the business until it is sold and/or distributed to the beneficiaries? Or would it be wiser to be a co-trustee? Additionally, key employees of the business may merit consideration as executors and/or trustees. Trustee roles can be divided among individuals based on whether the assets are business or non-business assets. As for Executors, you can have Co-Executors, but you can’t split responsibilities based on the nature of the assets.
Finally, much of the above is meaningless if the small business owner has not executed his last will and will and/or has not transferred the interests of his small business to the trust for the rest of his life. Without an estate plan, small business owners die “intestate” and are passed on to their surviving heirs under the law, so who is appointed as the manager of their estate and who receives the business? I have no say. of the will. Failure to plan can result in your business being passed on to individuals you don’t want to receive and managed by people you didn’t choose to take.
In conclusion, if you have a small business, it is imperative to have a real estate plan in place that addresses the above issues (and others) specific to your business. The assistance of an experienced attorney is invaluable.
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* Anthony J. Enea is a member of LLP Enea, Scanlan and Sirignano in White Plains, New York. He specializes in wills, trusts, estates, and elder law. Anthony is the former chairman of the Older People’s Law and Special Needs Section of the New York State Bar Association (NYSBA), where he is also the former chairman of the NYSBA’s 50+ Section. He is past president and founding member of the New York chapter of the National Academy of Elder Law Attorneys (NAELA). Anthony is also Past President of the Westchester County Bar Foundation and Past President of the Westchester County Bar Association.He is (914) 948-1500 ort www.esslawfirm.com
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