Your estate plan should be crafted to suit your specific needs. There are those who think that there are limited possibilities, but in fact, there are estate planning solutions that can match virtually any set of circumstances.
Some people are faced with confusing situations, and this would extend to small business partners. How do you plan your estate if the value of your share in your business is a large part of your net worth?
This is a good question, but there is an estate planning solution that is often implemented when these circumstances exist. You could utilize a buy-sell agreement as part of your estate plan.
There are two different types of buy-sell agreements that are widely utilized: the cross purchase plan, and the entity purchase or stock redemption plan. First, we will explain the cross purchase plan by way of example.
Let’s say that you have one partner in your small business. You and your partner can get together to determine the value of your respective business shares. Once this value has been determined, you could take out life insurance policies on one another that will pay proceeds that are equal to the value of a share in the business.
When one partner dies, the surviving partner would collect the proceeds from the insurance policy. The proceeds would be utilized to purchase the share that was owned by the deceased partner from his or her family. As a result, the surviving partner could control the business without interruption. On the other end, the family of the deceased partner would have liquidity to spread among multiple inheritors.
Everything is the same with the business entity or stock redemption plan, except for the fact that the business entity itself would purchase insurance policies on each of the partners.
A buy-sell agreement can provide a solution in many cases if you are a partner in a small business.
Business Planning Reports
In this blog post, we have looked at one specific scenario that can exist for small business owners. If you would like to obtain more comprehensive information about estate planning for people who own businesses, browse our library of free special reports.
These reports have been carefully prepared, and they cover many different topics that are relevant to business people and others. You can access any or all of the reports quickly and easily through this website. To browse the complete list of titles, visit the following page: Free Estate Planning Reports.
Business Planning Consultation
There are many things to take into consideration from a financial planning perspective if you are the owner of a small business. Our firm would be glad to help if you would like to discuss everything with a licensed professional. We offer free consultations, and you can contact us through this page to set up an appointment: Indianapolis IN Business Planning Attorneys.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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