If you are a business owner, you may want the company to remain in your family after your death.
You want to minimize taxes and avoid probate, and there are trusts that can help you achieve your succession planning goals.
About a succession plan
A succession plan for the family business will help ensure a smooth transfer of ownership and management. The plan will generally include:
- The development and training of successors
- Coordination between business owners and managers
- Guide for delegation of responsibility and authority for successors
- Outside directors or advisors, if necessary
- Compensation planning to retain key employees
Succession planning should develop based on the best interests of the owner’s family. If you transfer the business during your lifetime, you will have the opportunity to consult with the successors.
You can create an Irrevocable Life Insurance Trust (ILIT) during your lifetime. With this kind of trust, an underlying insurance policy exists to pay benefits after your death. The benefits are not subject to probate, and your beneficiaries can receive them immediately. If you establish a Grantor Retained Annuity Trust (GRAT), you can retain income for yourself while preparing to transfer business assets to your children. You might also form a family limited partnership to hold your business assets. The partnership units would transfer to your successors, eliminating those units from your taxable estate.
A look ahead
As your attorney will no doubt remind you, the value of the family business may grow between the time you establish your estate plan and the time you pass away. Your taxable estate will show the value of the business on your date of death. Creating a trust such as an ILIT, GRAT or family limited partnership can assist with your succession planning goals and leave you with peace of mind.