Estate Planning for Small Business Owners

For small business owners, estate planning options seem insurmountably complicated. If you find yourself trying to navigate the intricacies of balancing your personal estate planning goals with that of your business, then you’re surely not alone!

Seeking the guidance and counsel of qualified legal and accounting professionals will help you to make decisions that best suit your needs, objectives, and the ability of your business to prosper generationally with comprehensive estate planning for small business owners.

Planning for your business’s future?

It’s no secret that special attention must be given to estate planning processes, options and objectives when family-owned small businesses are involved.

When considering the interests of those in closely-held businesses such as sole proprietorships, partnerships or close corporations in Florida, estate planning and taxation consequences must always be contemplated to eliminate the need for subsequent restructuring and anticipated problems connected with the ultimate disposition of such business interest.

Typically, your options as a small business owner are reduced to either (1) liquidating the business or (2) keeping it going.

Often, your choice may be based on personal feelings rather than the realities of your particular situation.

But a sound approach to the matter will ensure that you make the right decisions for yourself, your business and your heirs.

The following is a basic outline of considerations when creating your estate to include your family-owned small business to help ease any difficulty in making these important decisions later on:

  • Take into consideration the practicality of your wishes for the disposition of your business interests!
    1. If you choose to keep the business intact, it is imperative that you carefully consider who will operate the business after you pass away and exactly how your interest will be transferred. For example, if you choose to pass your business on to your eldest child, you must ensure that such a child has the desire, experience, and management ability to continue with the business.  Further, you must closely examine any existing operating agreement to ensure that such a transfer is permitted and not prohibited by preexisting provisions or agreements. When making the initial decision as to whether the business should be liquidated or carry-on, it is best to first contact the specific person you choose to pass the business to and determine whether they are sincerely interested in running the business.  Thereafter, you should evaluate the business abilities of that person to determine their qualifications to so and whether they can easily be prepared to take over when the time comes. It is advisable to work closely with your attorney when working through this decision.
  • At times, upon careful consideration of estate planning for small business owners, there may be no choice but to liquidate your business.
    1. If your small business does not have enough cash to timely meet its expenses and you do not otherwise qualify to secure such cash, such as obtaining life insurance or arranging for some other form of capital, you may have no choice but to plan for liquidation after your death. Therefore, it is imperative that you consider the exact liquidity and cash requirements of your estate and any intended beneficiaries. A qualified CPA and/or financial planner can assist with this step.
  • If you are considering electing to liquidate your business, it is important to review your various options and considerations.
    1. First, examining specific advantages, such as the availability of necessary cash for estate and beneficiaries or relieving beneficiaries of management responsibilities, as well as, various disadvantages such as removal of a source of income or difficulty in determining the value of a closely held, family-owned small business. Also, many times, the value of a family-owned small business is very closely linked to your involvement. This is especially the case with professional service businesses such as lawyers and physicians.
    2. Secondly, examining the methods of liquidation including the dissolution process of a partnership or the sale of stocks, fixtures or other assets upon your death is particularly important. It is imperative that specific provisions and plans are made in advance as there will be no guarantee of finding a suitable buyer who is willing to pay fair market value after your passing.
    3. And thirdly, having a buy-sell agreement, stock sale or repurchase agreement in place among co-owners of your business may be the most convenient and beneficial option to all involved. Having such agreements executed ahead of necessity will ensure the ability to properly finance the transition by obtaining financing vehicles such as life insurance policies etc.  In this case, your attorney and a qualified life insurance agent will work closely together to make sure your needs are being met.
  • If you prefer to transfer the business to your heirs, thoroughly examining the advantages and disadvantages of a comprehensive estate planning for small business owners’ strategy will assist you with making the right decisions.
    1. Aside from the obvious advantage of being able to continue the family business, transferring your interests to your heirs will also allow you to provide a steady stream of income for beneficiaries after you pass away. Additionally, there are also various tax benefits for closely-held businesses. Having the sound advice of a tax lawyer or qualified accountant is paramount when considering this option.
    2. On the negative side, however, the practicality of finding an appropriate transferee to continue managing the business, the possibility of having to liquidate the business if it is your only asset, and difficulty with valuation may prohibit such a transfer.
    3. Another consideration would be the fact that the spouse or children of your heir may ultimately have ownership and management rights to the business. For many, this is a significant consideration that ultimately leads to the decision to liquidate their business upon their death.  However, one way in which you may overcome any uncertainty is to give your heir a stake in your business while you are still involved to allow for a smoother transition and process when the time comes.
    4. There are two main methods of transferring your business:
      1. Directly transferring it to your intended beneficiary
        1. Outrightly transferring your business asset should only be made if you are certain that the transferee is capable of managing the business. Therefore, this would be entirely unsuitable for minors or those who may lack the necessary experience or knowledge.
      2. Transferring the designated interest to a Trustee who has the ability to manage your business for the benefit of your intended beneficiary.
        1. A trust may be established for a limited time until your intended heir is qualified to assume her role. However, several precautions must be taken to ensure the correct type of trust is created.  Having the wrong type of trust established can lead to the loss of various tax and liability protections, such as the subchapter S-corp election.  It is highly advisable to consult with a qualified attorney when considering this option.
      3. An alternative may be to make arrangements with other partners and/or key employees to handle the management of the business. Given the involvement of these individuals throughout the life of the business, they may prove to be the best option for assuming a managerial role for the benefit of your heirs.  This may involve promoting key employees to the partnership level, if necessary. Alternatively, such key employee may serve in a caretaker role while the intended beneficiary acclimates and gains the necessary experience and skill to take over. Either option requires careful consideration of the employee’s trustworthiness and will require an agreement to memorialize this arrangement.
      4. Considering the timing of your transfer is especially important. It can take effect through an inter vivos transfer of a portion of the business interest into an irrevocable trust or merely transferred upon death. Both options require the assistance of a qualified attorney to establish the appropriate legal vehicles to accomplish your objectives.
  • Tax considerations are a large part of any family-owned small business succession plan. It is imperative that you solicit the guidance of a qualified accountant to work together with your attorney. You may accomplish significant tax savings through certain restructuring of your business through the use of incorporations, holding companies, recapitalization of stocks etc.  The prime objective of restructuring your family-owned business is to reduce the size of the taxable estate by diverting appreciation and income to your beneficiaries as early as possible. However, given the complexity of such an endeavor, it is advisable to retain a highly experienced attorney who is familiar with such restructuring.


While this checklist provides a great starting point, it is by no means a comprehensive list.

The balance between personal and business estate planning can be very tricky and the possibility of intermingled assets and the involvement of non-family members such as partners and employees make the need to pre-plan particularly important.

It is imperative you secure a team of professionals who are qualified and suited to assist you with these needs. To discuss your specific needs and learn how ASR Law Firm may assist, contact us here.

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