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Estate Planning for Small Business Owners

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If you are running a small business, you have likely put your heart and soul into it and done everything in your power to make the business successful. But what happens when you step away from the business, or if you were to pass away? Would it continue to hum along, doing business just as you intended? That all depends on how you have planned for the business after your passing. And if your legacy is important to you, estate planning for your small business will be vitally important. 

Succession Planning

One of the ways to ensure your business is set up for the future is through business succession planning. This is especially important if there are multiple owners of the company. When multiple owners are involved, a solid buy-sell agreement needs to be in place. These agreements make sure there are clear steps for a transition plan after the death of one of the owners, and place restrictions on transferring ownership. The buy-sell agreements allow the surviving owners to pay off the decedent’s beneficiaries in exchange for all the decedent’s share of the company. A succession plan prevents a lot of headaches for the other owners, as well as the deceased’s family. It also prevents a situation where new owners come in who do not know how the business runs and makes sure heirs receive their assets. 


All owners of a small business should make sure they have a life insurance policy in place. This will ensure their heirs are paid. Without life insurance, the surviving shareholders will have to find other ways to pay, whether from working capital or a business loan. 


Small business owners should consider putting in place a living trust, which allows the owner provide for their estate planning, business succession planning, and asset protection. The living trust should be funded with the business interests and should state how those interests should be distributed in the event of death.

Another advantage of a trust is the ability to avoid probate, which can cause delays in sorting out the owner’s estate. A trust bypasses that process, which involves probate court. Probate can also be expensive for the beneficiaries. Probate may also stall business functions, which can be avoided with a trust in place. 


Estate planning for your business can limit the amount of taxes your estate will owe. Estate taxes also called a “death tax,” may be as much as 35-to-50 % of your business’s worth and is owed within nine months of the owner’s death. Because of the short timeframe and the amount owed, most businesses are sold for much less than they are worth, just to cover the taxes. Proper estate planning can help to avoid this. Two IRS tax breaks, Section 303 and Section 6166, alleviate the tax burden for small business owners. In Section 303, your estate is allowed to access your stock holdings with very little tax cost. In Section 6166, taxes owed on your estate are allowed to be paid in installments, thereby getting around the nine-month requirement to pay all of the taxes. Under 6166, the first installment isn’t due for five years. This gives your business time to earn money to cover the taxes.

Contact The Mattar Firm’s Estate Planning Attorneys

If you are a small business owner and looking into estate planning, consulting with an experienced estate planning lawyer can help make sense of everything and help you to execute an estate plan according to your wishes. You have worked hard for what you have, and ensuring your assets and business are taken care of is essential. Schedule a consultation with The Mattar Firm today. Call 844-444-4444. 


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