Planning for the disposition of your assets should be comprehensive, including your personal and business assets. Failing to plan for the succession of your business can turn into a complicated task for your family members, who may not have the hands-on skills or knowledge to avoid debilitating tax bills, forced liquidation, or management chaos.
With the right planning, you can ensure a smooth transition and peace of mind. Partnering with the right, experienced business and estate attorney can relieve your family of the burden of deciding how to handle your business affairs. A qualified professional estate attorney can outline and explain several workable options suited for your business’s size and structure.
Protecting the Future of Your Business
There are several legal vehicles that protect your investment in your business and relieve your family of a burdensome task. Much of what makes sense for your business depends on the specifics and character of the business. Here are a few examples:
Sole proprietor, small lifestyle business: Revocable trust, a durable POA, and clear written instructions for sale or transfer; consider selling to family or outside buyer on death.
Family business with next-generation successor: Buy-sell with phased transfers (gifts, compensation) and minority protections for non-participating heirs (buyouts, guarantees).
High-value business facing estate tax risk: Consider advanced tools (IDGT, GRAT, ILIT, family entity planning) — coordinating with tax/estate counsel is critical.
At a minimum, planning experts say you should compile the following documentation on your business:
- Get a current, professional valuation. Estate, buy-sell, and tax planning hinge on a reliable valuation — don’t guess.
- Inventory ownership and governing documents. List shareholders/members, voting rights, transfer restrictions, outstanding buy-sell provisions, and loan guarantees.
- Create or update a funded buy-sell agreement and ensure funding (life insurance, escrow, company cash) is in place.
- Decide whether to transfer ownership into a trust (revocable vs irrevocable) — discuss tax, control, and basis consequences with your attorney and tax advisor.
- Draft a business-specific durable power of attorney (or dual POAs), naming alternates and clarifying authority to operate the business.
- Protect key people and operations. Consider key-person insurance, documented succession for C-level roles, and cross-training.
- Coordinate personal estate documents (will/trust, healthcare directive, powers of attorney) and your business documents so they complement rather than conflict.
- Review every 2–3 years or after major events (sale, new partner, tax law changes). Estate tax and trust guidance changes can materially change recommended approaches.
Common approaches to planning for a business succession include:
- Buy-sell agreement for a multi-owner company. This legal instrument can be funded by a life insurance policy. It spells out the terms of succession and removes doubt about continuity for partners.
- Operating agreements should be contained in governing documents, including transfer restrictions, buyout formulas, and voting and management transition rules.
- Revocable trusts for your ownership interest avoids probate for that portion of the business, establishes a successor trustee, and keeps the information private.
- Advanced planning tools for larger businesses help reduce taxes and protect your legacy, such as grantor retained annuity trusts (GRATs), intentionally defective grantor trusts (IDGTs), family limited partnerships (FLPs) or LLCs, and dynasty/asset-protection trusts. Your estate attorney can recommend which strategy best fits your situation.
Your Legacy: Where Your Work Counts
Tying up loose ends by establishing a clear plan of continuity for a business is a gift to your family as well as others who rely on your work, such as employees, partners, and clients. When you work with professionals at Legacy & Life Law Firm LLC your desire to provide the maximum benefit to your family and other beneficiaries is translated into a comprehensive package of legally sound and executed financial instruments. You can trust us to put your interests first.