A successful business can be an incredible asset to an individual by providing a means to support themselves during their lifetime and offering financial security to family members in the years following their death. Before you can give the business to your heirs upon your passing, however, it is essential to understand how probate affects business succession in Manalapan Township.
Probate is the legal process required to establish a will’s authenticity and validity. Upon an individual’s death, nearly all assets, including assets relating to one’s business, must go through probate. If there are any disputes relating to aspects of a decedent’s will, the matter is heard and decided on by a judge in probate court.
State laws regarding the probate process are notoriously complex, and a small mistake in your estate planning could be detrimental. Having airtight business succession plan documentation before you die can make all the difference for a business’s future, and a skilled attorney could help you do so effectively.
Creating a Business Succession Plan
The probate procedures in Manalapan Township can significantly impact the transfer of business assets following a business owner’s death, so it is crucial to develop a strong business succession plan to protect everyone’s interests.
A business succession plan outlines an owner’s wishes regarding the future of a business if it closes or ownership is transferred, such as in the case of an owner’s death or serious illness. In this plan, the company’s owner explicitly states their objectives regarding the business exit. Important factors to consider include the company’s dollar value, how the business interests would be legally disposed of, and funding plans to ensure ongoing management operations can continue.
Some of the specific items one should include are directives for include:
- Training successors
- Delegating successors’ authority and responsibilities
- Coordinating business ownership and management
- Ensuring key employees remain with the company
An experienced attorney in Manalapan Township could ensure that all of these items are addressed in a business succession plan.
Business Succession in Co-Ownerships
When there is more than one business owner, the business succession plan may contain a buy-sell agreement, which ensures that a business’s co-owners remain in control over its assets through the repurchase of a deceased co-owner’s share. Notably, co-owners often include a buy-sell agreement when they wish to prevent the business assets from automatically passing to a deceased co-owner’s family members or other beneficiaries.
To ensure there are available funds for the repurchase when a co-owner dies, each owner may take out life insurance policies on their co-owners and use those policy proceeds to buy the shares.
Another option for funding a buy-sell agreement is to purchase an irrevocable life insurance trust (ILIT). An ILIT provides a unique structure in which the actual trust both owns life insurance policies and serves as their beneficiary. Generally, ILITs may not be altered after they are created. The most significant benefit of an ILIT is that it excludes proceeds from these life insurance policies from the taxable estate.
Protecting Business Assets Through Probate
There are a number of options for business owners who wish to minimize the tax implications their deaths may have on the business, the individuals within the business succession plan, or their heirs.
First, by establishing a grantor-retained annuity trust or a grantor-retained unitrust, a business owner may be able to ensure that the growth of certain trust assets may bypass probate and be excluded from their taxable estate.
If a business owner wishes to keep a business within their family, they could also create a family limited liability company or a family limited partnership to hold the assets that belong to the business. In some cases, this measure can exclude these assets from the owner’s taxable estate.
Consult a Manalapan Township Attorney About Business Succession in the Probate Process
When considering a business succession plan and the tax implications, the stakes are high, and the governing laws are complex. Working with a skilled lawyer who knows how the probate process affects business succession in Manalapan Township could help you determine which options for securing the future of your business may be right for you. Contact us today to set up a consultation and learn more.