Don't Avoid Business Succession Planning
May 18 2017
Mary Locken, SVP/wealth & fiduciary division manager with Bell Bank Wealth Management, says the estate-planning process includes a plan for how estate taxes would be paid. If there are no measures in place for paying the taxes, business assets may have to be sold, or encumbered with debt, to cover the taxes plus post-death administration expenses.
“What’s so difficult in those situations is that substantial business assets may have to be borrowed against or sold on a forced timing basis, perhaps during undesirable market conditions, so it might not be possible to obtain even fair market value for those assets,” Mary explains. “Some tax laws permit the estates of some business owners to pay estate taxes over a 10-year installment, but you certainly don’t want to roll the dice and hope your business and estate qualify.”
If you die without a succession plan, your estate will be subject to state laws with very specific guidelines, which may not match your wishes for how you transition your business and assets.
“In many situations, the statutory provisions are not even close to what a business owner may want for the disposition of their estate,” Mary says.
Planning ahead is key, and succession planning can be a streamlined process. It’s prudent to work with tax and legal advisors who specialize in estate and business succession planning. It’s also important to review your documents regularly and update them if needed. Problems could arise from estate-planning documents that are woefully out of line with your current circumstances, desires or estate tax laws which have changed drastically over the last two decades.
“I have been in the estate-planning business for years and have seen many people who have achieved great business success, but they just didn’t take the time to create effective estate and business succession plans, which would have carried out their wishes,” Mary remarks.
Some people avoid making an estate plan because of complicated family circumstances. But challenges with family members, such as addiction, feuding or poor money management, are all the more reason to have a strategic business succession and estate plan with provisions to help minimize potentially difficult situations.
“You have poured many years of blood, sweat and tears into your business, and to avoid planning for its disposition is a mistake,” Mary says. “You want your business to be managed in a prudent and successful manner. Don’t allow your hard-earned assets to be wasted or handled in contradiction to your wishes because you don’t have business succession and estate-planning strategies in place.”
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This article has been written for the general information of clients and friends of Bell Bank. It is not intended, nor may it be relied upon, as tax or legal advice with respect to any matter. This article also cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service or other taxing authority.
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