Succession Planning for Business
With so much time and work required to create, sustain, and grow a business, many small business owners overlook what may be their biggest asset upon retirement – their business. Or they fail to consider who will take over the business in the event of their untimely death. Cambridge can recommend the most tax-advantaged way to transfer your business to family members, or valued employees, while at the same time securing your retirement future.
In addition, Cambridge is associated with business brokers that are experienced in selling family owned businesses. These professionals can assist you with evaluating and selling your business when you are ready exit.
To appropriately address the unique transition needs of your business a variety of options may need to be considered. The solution really depends upon your goals and objectives. Regardless of all the factors to be considered Cambridge is capable of developing and implementing a tailor-made plan that is right for your business.
A buy-sell agreement is a contractual arrangement between partners or shareholders outlining how the ownership of a company will be evaluated and transferred upon a “qualifying event” such as death, disability, bankruptcy, divorce, or retirement. Most buy-sell arrangements are funded with term life insurance policies, which is fine as long as the qualifying event is a death, and it occurs during the term of the policy. However, what happens if a partner retires, leaves to pursue another opportunity, or becomes unable to work? Most businesses are unprepared for those types of events. Cambridge can offer you a variety of options to finance a transfer of ownership, some of which may be tax advantaged.
Estate Planning for the Business
Planning for the success of your business is hard enough, but planning for what happens after your gone can be even more difficult. At Cambridge, we realize your business is your life and your legacy. That is why now may be the time to consider such issues as 1) whether your business will be subject to the estate tax; 2) whether you want the business to pass to family members, trusted employees, or outside parties; and 3) have you prepared the right legal documents to make sure your wishes are carried out.
One of the primary issues upon a business owner’s death is the federal estate tax, which is 40%. Without sufficient planning in this area, your heirs may be forced to sell a part of the business, or liquidate other assets to pay the tax bill. Worse yet, if your intent is to have the business sold by your estate after your death the IRS will be expecting payment of the estate tax within nine months. That often means a business is sold at “fire sale” prices just to come up with the resources to pay the taxes due. Cambridge is very familiar with these challenges and can offer you several strategies to reduce or eliminate the estate tax as it applies to your business.
If you have a family operated business, you may have some family members that are engaged in the company and others that are not. Consequently, you may want to make sure that those who helped build the business have a greater ownership share than those who did not. Without addressing this issue on the front end there may be a lack of continuity and leadership for the business and hurt feelings among family members. There are easy solutions to fix this problem and Cambridge can help you put them in place to make sure the vision for your business is carried out.
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