Estate Planning Considerations for Family-Owned Businesses

When it comes to estate planning, family-owned businesses have their own unique set of considerations. By addressing these issues, a business owner can help ensure the smooth transition of a family business from one generation to the next while also minimizing their tax burdens. If you own a family business in DuPage County, it is important to understand these considerations and work with an experienced attorney who can assist with business succession planning and other related concerns.

Why Estate Planning Matters for Family-Owned Businesses

Estate planning involves making arrangements regarding the management and distribution of your assets after your death. For owners of family-owned businesses, this means ensuring that the business continues to operate successfully under new ownership while minimizing any potential conflicts or disputes among family members.

In addition to traditional estate planning practices such as writing wills and establishing trusts, there are specific strategies that can be employed when it comes to estate planning for family-owned businesses:

1. Succession Planning

As you plan to transfer ownership of your business to family members or others, you will want to do the following:

• Gather all relevant information about your business: Document key operational aspects such as financial statements, contracts, liabilities, and intellectual property rights.
• Identify potential successors: Determine who within your immediate and extended family has both the desire and capability to take over the business.
• Create detailed plans for each possible scenario: Whether you choose a single successor or plan on dividing shares of your business among multiple relatives or other parties, clearly define how the transfer of ownership should occur upon your retirement or death.
• Consider non-family management options: In some cases, it may be beneficial to bring in outside managers or establish governance structures like advisory boards if there are no suitable successors within your immediate family.
• Communicate openly with your family: Once you have a succession plan in place, it is crucial to discuss the details of succession and your expectations with all family members involved. This can help prevent potential disputes or misunderstandings down the line.

2. Minimizing Tax Liabilities

Taxes are an unavoidable part of estate planning, especially when it comes to high-value assets like family-owned businesses. Working with an attorney who has experience in estate tax planning can help you minimize your tax liabilities and maximize the value of your business for future generations.

Some common strategies that may be used to mitigate tax burdens include:

• Gifting or transferring shares while alive: By giving shares of your business to your family members throughout your lifetime, you can reduce the overall taxable value of your estate.
• Create a trust: Placing ownership of the business into a trust allows you to retain control over its operations while potentially reducing estate taxes.
• Leverage valuation discounts: Discounting the value of minority shares or applying marketability discounts can reduce estate taxes by lowering the overall taxable value of the business.
• Utilize life insurance policies: Life insurance benefits are generally not considered part of an individual’s taxable estate, making them a useful tool for providing liquidity and meeting potential tax obligations without burdening beneficiaries with high tax bills upon transfer.

Contact Our Naperville Business Succession Attorney

If you own a family-owned business in Illinois and want to ensure that it continues successfully through future generations, the Gierach Law Firm can advise you on how to put a business succession plan in place. Our experienced DuPage County estate planning lawyer can provide personalized guidance based on your specific needs. To set up an appointment and begin the succession planning process, contact us today at 630-228-9413.

Sources:

https://www.investopedia.com/terms/s/succession-planning.asp

https://www.nerdwallet.com/article/investing/estate-planning/estate-tax-planning