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3 important estate planning concerns for business owners

On Behalf of | Jan 23, 2024 | Estate Planning And Litigation |

People become business owners in California for many different reasons. Some people start businesses as a way to support themselves and their families using their industry connections or professional experience. There are others who inherit businesses and even people who buy into franchises as a way of taking control over their careers.

Business owners often have to invest both financially and personally in a business for it to succeed. They may spend years working more than 40 hours a week to establish their company. Eventually, they may reap the rewards of all of the time, money and effort invested in the organization. They can enjoy a regular source of income and a sense of personal pride. The business that they started can also provide financial stability for their loved ones for the indefinite future as well.

Those who own a business may need to address unique issues when putting together a California estate plan. The following are some of the special concerns that business owners need to address during the estate planning process.

Future management of the business

A business owner may need to establish a succession plan for their company. A succession plan helps ensure that someone else can take over the operational functions that the owner performs for the company. Succession plans sometimes include instructions about how to train a successor. The owner might even identify specific candidates who have the qualifications and temperament necessary to successfully operate the business. A succession plan can help transfer the disruptions to company operations when the current owner dies or becomes incapacitated and therefore unable to perform their job.

Instructions for business ownership

The person who runs the company also needs to think about transferring ownership of the business. They might name a specific person to run the company without necessarily granting that person sole ownership of the organization. Occasionally, the original owner planning their estate may want to sell the business after their death so that the beneficiaries of their estate can share in the value of the company instead of having responsibility to run the business in the future.

Plans for taxes and other challenges

A successful business could potentially have a fair market value of millions of dollars. Although California does not collect an estate tax, federal estate taxes do apply to any estates passing through probate court in California. As of 2024, the threshold for taxes at the federal level is $13,610,000. Determining the current likely value of someone’s steak in the company could help them proactively minimize estate tax risks.

Taking the time to specifically address unique estate concerns related to business holdings may benefit those who have started, purchased or inherited a business while living in California.

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