Estate planning for people who are partners in small businesses often involves the execution of buy-sell agreements.

If you were to just leave your share of the business to your family what would they do with it? It is possible that someone in the family would want to fill your role in the business, but where would that leave everyone else in terms of inheritances?

And of course your partners may not particularly want this individual to join them.

Your family could sell the share to the highest bidder, but once again the remaining partners would be forced to deal with the outcome of the sale whether they liked it or not.

With a buy-sell agreement you get around these difficulties.

When you use the type of buy-sell agreement called the cross purchase plan the partners in the business agree upon the value of a share. They then take out insurance policies on one another equal to the value of a share in the business.

If one of the partners was to pass away the proceeds from the insurance policies would be utilized to purchase the deceased partner’s business share from his or her family.

The share would be liquid at that point so it could be distributed among multiple heirs in accordance with your wishes.

Building a successful business is difficult, but it is very rewarding. You do however have to ask yourself how you will be exiting, and this is something to discuss in detail with a licensed and experienced estate planning lawyer who has a thorough understanding of small business succession strategies.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

It has never been easy being a farmer, but it seems like it gets tougher every year. Besides the constant worrying about this year’s yield and next year’s, farmers today have to worry about what will happen to the farm after they pass away. According to the United States Department of Agriculture, the younger generation is not staying on the farm to help out anymore and take over eventually. This leaves farmers in a bind over what to do with the farm in their estate plans.

Most farmers would like to see their farms stay in the family. That requires a minimum of two things that must be planned for: the estate tax and who will take over the ownership of the farm. You might be thinking that the estate tax is only for the rich and that farmers are not rich. While it’s true that farmers do not often have enough cash to qualify for the estate tax, the value of farm real estate and equipment puts many farm estates over the limit. Farmers need to plan how their estate can pay any taxes due without selling important land and equipment. Farmers also need to plan whether a family member will carry out the farming duties or just maintain ownership.

If you own a farm, talk to an estate planning attorney about what you can do to make sure that it stays in the family. We are grateful you follow us and value your comments and input.  You Can Also Find Us Online: Facebook | Twitter | LinkedIn Thanks again.

Dennis D. Duffy

Duffy Law Office

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Limited liability companies are the entity chosen for many businesses because they are easy to set up, simple to run on a day-to-day business, are pass-through entities for income tax purposes, and offer asset protection. Is a limited liability company (LLC) right for your business?

Asset Protection as a Huge Benefit

LLCs are used in comprehensive estate planning to insulate liability and prevent assets from being seized by creditors.

An Example:  When Asset Protection Matters

Frank, Jim, and Pam owned their lighting supply business in an LLC.  In addition, they owned the business’s 3 delivery vans in a separate LLC. 

When Jake, an employee, crashed into a school bus full of cute little first graders, killing 3 and seriously injuring 12, Frank, Jim, and Pam were sued.  The jury verdict was $33 million. 

• The auto insurance paid the first $500,000.
• The business umbrella liability insurance paid the next $5 million. 
• The remaining $27.5 million was never paid.  The business assets were protected; Frank, Jim, and Pam’s personal assets were protected.

Why?

The delivery van that Jake was driving was owned in an LLC.  Liability was insulated to that LLC alone.  The only assets in the LLC were 2 other delivery vans valued at about $15,000 each.

A charging order was issued, meaning that the creditors would receive whatever was distributed within the LLC.  There were no assets to distribute.

Even if the jurisdiction allowed the court to foreclose on the assets in the LLC, recovery would be limited to the $30,000, the fair market value of the 2 remaining delivery vans.

Consult with a Qualified Estate Planning Attorney

If you would sleep better at night knowing your assets are protected, consult with a qualified estate planning attorney to determine whether a limited liability company (LLC) is a good fit for your business.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

You have worked hard to build your small business. You’ve given it the best years of your life and you can’t imagine giving it up. To protect its financial health, its day-to-day operations and develop a plan for succession, you’ll need a estate planning documents.

By creating a living trust you can . . .

. . . Prevent your business assets from being used to settle the debts of your personal estate. If you don’t want to endanger the continued operations of your business, set up a living trust to retain ownership and continue the operations of the business.

. . . Create a plan of succession if you want your business to continue long after you pass away. A trust can name a trustee for the trust and name a separate person that will succeed you. If you were a sole proprietor, you can name an entire board of trustees that will take over for you. They can be business associates, employees or relatives to whom you’ve passed on a share of the company as their inheritance.

When preparing the trust document, you may also wish to draw up a healthcare power of attorney and a financial power of attorney and name a person or persons to make decisions for you and your business if you become incapacitated. If you are the only one authorized to make financial decisions for your business, your business may not survive.

For more information on setting up a living trust and related documents to protect your business, give our office a call today.

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Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.