Elder Law Report

Secure Your Business Legacy: The Importance of Estate Planning for Business Owners

May 07, 2023 Greg McIntyre, J.D., M.B.A.
Elder Law Report
Secure Your Business Legacy: The Importance of Estate Planning for Business Owners
Show Notes Transcript

Attention business owners! Estate planning is especially important for those with businesses, and we've got you covered. Check out our latest edition of the Elder Law Report on "Business Ownership & Estate Planning" featuring Estate Planning Attorney Greg McIntyre discussing special concerns for business owners. Watch the video now and learn how to protect your business and plan for the future. And if you have questions or need guidance, reach out to us for a FREE consultation at 1-888-999-6600 or visit our website at mcelderlaw.com. Let's work together to secure your legacy.

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Speaker 0 (00:00:00) - Please don't wait till it's too late. McIntyre Elder Law,

Speaker 1 (00:00:08) - Oh, this is Greg McIntyre with today's edition of the Elder Law Report. Today we're gonna talk about a special topic, business owners and estate planning. So how does business ownership and estate planning go hand in hand and what should Ben business owners be aware of? Well, business owners have a special set of circumstances. They generally are either in a partnership or they're in a, an ownership with an llc, a percentage ownership of an llc, either 100% or sharing that with someone else or they own shares of stock in a closely held corporation, either themselves a hundred percent or with several owners, one or more owners. So what happens to that business interest, those shares of stock, that partnership interest or that LLC percentage when a business owner passes away? These are things that sometimes business owners do not think about, I would say a lot of times.

Speaker 1 (00:01:11) - And they are surprised that they are now in business with their partner's spouse or their partner's children. Same thing with shares of stock and ownership of a corporation or with, um, percentage ownership of an llc. Those are assets that stock that percentage ownership. That partnership interest is an asset and it will pass through that partner's estate plan. If you're a hundred percent owner, it will pass through your estate plan. So there's many different ways to set this up. You could pass your ownership interest through a last will and testament through probate or, and because if you don't, if you don't designate what's going to happen, it's going to go to your heirs at law. If you are in partnership with someone else or share ownership in some with someone else, uh, either through a corporation or llc, their interest will pass to their heirs at law.

Speaker 1 (00:02:10) - And you may be in business with somebody's spouse or children or spouse and children depending on, you know, who's living and how many children there are. So, so, you know, lots of special concerns here or interest that need to be taken into account when you are structuring an estate plan for a business, frankly, when you're structuring a business, especially with more than one owner. And then secondarily, what happens if one of the partners passes away, one owner passes away? How is that going to be handled the quickest and most efficient in order to be, uh, the best for the business and the best for the continued operation of the business? And I help council, um, business owners all the time on the entity set up operating agreements between the parties and how that can be set up to be fluid along and work along with their estate plan.

Speaker 1 (00:03:16) - Um, so first, and we've touched on this already, the types of businesses. There's a lot of different types of business entities. I'll, I'll go with three basic partnership, which is where you may or may not have a written partnership agreement between the parties. Lll, llc, a limited liability company where you have percentage ownership and you can give or sell percentage ownership in the business or a corporation. S corp C corp really doesn't matter to me. Only difference between a C corp and an S corp is you take a sub s election with the irs, you can do that with an LLC as well for flow through and pass through taxation. The whole purpose of an LLC incorporation is to separate your personal assets and liability from the business assets and liability so that you aren't personally on the hook if the business gets sued. That's what LLCs and corporations are really, really good at doing.

Speaker 1 (00:04:24) - If you operate them correctly and keep great minutes of regular meetings, um, or else you're in danger of having the corporate bill veil pierced and showing it as a sham corporation, that you're really not operating the correct way. So I have these conversations with my clients on a regular basis. Um, and, and we'll talk about some scenarios. So we talked about briefly that you can pass a corporation or LLC or partnership interest by your will, and you could spec specifically name it in your will and direct who receives it. If you wanted some children to share ownership, uh, you could want your spouse, um, you could want your business partner to share ownership. Um, you can also place partnership interest or, um, L L C percentage ownership interest or stock shares of a corporation. You are running into a trust that would add beneficiaries to the shares of ownership, percentage of ownership or partnership interest.

Speaker 1 (00:05:37) - And the beneficiaries are of the trust, trust have beneficiaries, which makes it very easy for a trustee to simply work with an attorney like me to transfer that interest to the right people that you've named in the trust if you were to pass away. Another way to do it is for business owners, especially if there are two or more business owners to build and create an operating agreement. So an operating agreement has the ability to say, okay, if it's an llc, for example, I'll, I'll use that as an l a as an example, Acme llc, and I own a third and I have two other people who own a third. Two of my children maybe own a third a piece, maybe I own 50% and, uh, my two children own 25%, but to ensure that I give my interest to them when I pass away, I can direct my interest to go to them when I pass away in the operating agreement.

Speaker 1 (00:06:43) - And also, you know, you when, when I said you might be surprised to know that you're doing business with a business partner's spouse or children buy, sell agreements can be put in place. And those are generally funded by keyman or key person life insurance policies that when a business partner dies, that it activates that life insurance policy and the percentage ownership or shares are bought back by the corporation or llc. And then that way the spouse children are happy and they're given fair market value for their, uh, deceased spouse or parent's interest in that business LLC or corporation or partnership. And the buy-sell agreement references gives an abil ability to value the business annually as well as references the need and the requirement that the business pay for the keyman life insurance policies on all the owners and Keyman life insurance policies, in my experience, are rather cheap and are not, you know, overly burdensome on the business and everybody wins in that scenario.

Speaker 1 (00:08:10) - So I like to set up scenarios that happen quickly, efficiently, and where you have multiple wins, um, out of one solution, which would be a buy sell agreement where if my partner dies, I now own a hundred percent of the business and, uh, his or her spouse is paid for the value of the shares that I'm receiving. So that would be a win-win in my estimation. So we talked about that creating LLCs or or corporations really provide liability and they do. There's another way to add more liability, protection and separation, so to speak. Um, your shares of ownership in an llc, your shares of stock and a corporation can be placed into a trust. So a trust can be set up to house the LLC or corporation inside and offer an additional buffer between personal assets while you still keep control in a revocable living trust of the asset, which would be your percentage ownership in the business within the trust.

Speaker 1 (00:09:43) - Um, then that ownership interest would either be held in trust for say children until they were ready or maybe given outright by the trustee, uh, to the person who you wanted to receive it. And I'm, I'm a big fan of that. I call that a Russian nesting doll strategy to offer multiple layers of liability to business interest. I really enjoy working with business owners. I am a business owner myself. McIntyre Elder Law, um, has been my passion, my baby. Uh, if you have a business, you understand that for a long, long time. And I really enjoy working with business owners like me to help create business succession plans and business plans that transfer assets, transfer business ownership and assets, um, very efficiently so that everybody can have peace of mind that that has been taken care of.

Speaker 1 (00:10:49) - Should your business plan work along with your other estate plan, I think that's an obvious answer. Um, certainly it should be crafted the business plan to work in harmony with any other estate planning and I have lots of experience with doing that. I would offer a free consultation to, to anyone out there, uh, looking to engage in business and estate planning, um, and, and by, you know, sitting down having a conversation with me and working through it. You can take advantage of that free consult by dialing 1 8 8 8 9 9 9 6600. Or you can schedule your free consult online@mcelderlaw.com.

Speaker 0 (00:11:42) - Life is busy. We all know we put off planning until things get slow. Tomorrows never promise today, don't get too busy. Let it off. Slip away. Please don't wait till this too lady call back in Tiger Elder, additional planning or more complex, we can help when your perplexed, if a loved one needs long-term care, we can help avoid some of the scare. Please don't wait till this too lady call back and elder planning benefits and even probate. We take the planning piece up your plate. If you were your spouse, were in the military, we can help with benefits for your family. Please don't wait. It's too late. Call Elder, please don't wait.