Estate Planning for the Closely Held Business
B RIAN J ONES , H ARRISON & H ELD , LLP
Estate Planning for the Closely Held Business This chapter is intended as a broad overview of some of the things a business owner might consider as a business grows and its owner’s net worth and age advance. In rough chronology of a business owner’s life cycle, below are some techniques a business owner may want to discuss with a trusted advisor. Many of the topics which would initially be raised by an estate planning attorney, such as business entity selection, registration and corporate formalities, have already been touched on in other chapters.
Core Estate Planning Documents While not specific to business owners, it is the author’s opinion that everyone, regardless of wealth, should have the following core estate planning documents in order: Powers of Attorney – These documents are statutory in nature and require minimal creativity, time or expense. The consequences, however, of not having them in place could be disastrous (an example being the recent case of Terri Schiavo). A power of attorney for healthcare allows the principal to designate an agent to make healthcare decisions on their behalf, in the event they’re unable to communicate their own wishes. It also gives the option of expressing a preference on organ donation and end of life decisions (e.g. your views on feeding tubes, respirators, etc.). A power of attorney for property allows the principal to designate an agent to make financial decisions on their behalf in the event they’re unable to communicate their own wishes. This may also include limited powers to make decisions relating to the closely-held business. Revocable (“Living”) Trust – While a Will is a document that, upon death, outlines your final wishes in regards to your assets and personal prop-
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erty, a trust, on the other hand, can be created for asset management both during your life and continuing after your death (a revocable trust is created during your lifetime and becomes effective immediately). You can be the trustee of your trust while living, and (upon your mental incapacity or death) your successor trustee(s) can step into your shoes immediately and start handling your financial affairs without a court order. This immediate succession is essential for a business owner. Pour-over Will – A pour-over will is used in conjunction with a revocable trust. Under this type of plan, the only beneficiary of the will is your Trust. A pour-over will serves as the “catch all” in case an asset is held in decedent’s name and “pours it over” to the trust after death (additionally, the pour-over
will is where guardians for minor children are appointed).
Startups As a business owner and member of the local business community, you may be presented with an option to invest in a new business venture. Perhaps the easiest layup in the advanced estate tax planning game is the equity dispersion for a startup company, a startup fund, or any new equity investment. Using Trusts as Equity Investors in Startups For gift tax purposes, the value of a gift is its fair market value. The Regulations speak in terms of a hypothetical willing buyer and a hypothetical willing seller and provide that the “fair market value is the price at which the property would change hands between a willing STARTING AND GROWING YOUR BUSINESS