As a business owner, it’s critical to have an estate plan – but even more critically, an estate plan that accounts for your business structure and the ins and outs of your specific business. Estate planning isn’t just one area of practice, but rather an umbrella which many different areas fall under. The creation of an estate plan for a businessperson who operates a own stock portfolio, for example, will need a significantly different estate plan than the business mogul who owns a couple of different corporations. Getting a qualified and experienced attorney that suits your needs and can work with your business is crucial to avoiding some massive issues within your business operations.
In particular, there are contracts in the business space that your estate plan must be cognizant of. Buy-sell agreements normally specify how your share of a business will be handled in the case that you leave the business, and may include cross-purchase or redemption terms, which specify that your shares may be bought out by the other owners or the business entity itself, respectively.
Corporations and LLCs also frequently have documents specifying what happens in the case of an owner leaving, such as the Operating Agreement or Bylaws. These documents frequently contain specific limitations on how you may or may not transfer your share of ownership in the business, and if broken, could trigger harsh penalties for doing so. Furthermore, your estate plan could even revoke your entity’s tax status, forcing you into the default tax regime, which may not be what you want.
For instance, if you were the owner or partial owner of an LLC or corporation, you may decide to work with your attorney to create an estate plan which moved your business into a trust for tax benefits. In some cases, this is a recommended step in your estate planning and could net you plenty of benefits and protections from liability. In the case of some partnerships or LLCs with documents that specify the allowed movement of ownership, transferring your share of the business into a trust is considered a breach of what is allowed, and would trigger a forfeiture or mandatory sale of your ownership through a cross-purchase or redemption agreement.
Contingencies like this are why it’s absolutely necessary to work with an attorney experienced in business law to create an estate plan that takes into account your specific business. Attorney Tyler Q. Dahl has experience in estate planning, business succession planning, and has worked with many clients before who require focused attention to details to avoid cases just like this. For guidance on how you can create an effective estate plan, contact us today.
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