Some families need more than the beneficiary protection and the estate planning protection a living trust can provide. Families with large estates may benefit from strategies that remove assets from their taxable estate. For example, a person with a substantial amount of life insurance may benefit from removing the life insurance from their estate. This way, the death benefit will not be subject to a 40% estate tax rate upon the person’s death. We help clients such as this reduce their taxable estate using Family Limited Liability Companies (FLLCs), Inheritance Protection trusts, Irrevocable Life Insurance Trusts (ILITs), and other strategies when appropriate. We also help clients who need asset protection or wish to engage in charitable planning.
Do You Own a Business?
Many of our clients have their own business and need advanced planning to ensure the business transfers as they wish if something happens to them. We use creative planning strategies to meet these objectives. For example, a married couple has three adult children and a business that is their primary family asset. One child works in the business, while the other children have different careers. The parents want to maintain control of the business while alive and treat all three children equally upon their death, while leaving the business to the one child who actually works in it. Using creative gifting strategies and life insurance, the parents can accomplish this goal.
What Would Happen to Your Business If Your Business Partner Passes Away?
Failing to plan for the business to transfer correctly if a business partner dies can also create significant problems that could be avoided with proper planning. Otherwise, the surviving partner could find himself in partnership with a former partner’s spouse, child, or an unknown third party. Consider the following example.
In the 1970’s, two creative friends developed a very unique game. The two became business partners and formed a company to market and sell their game. They later took on a third partner who provided needed cash to help market the game. After game sales began to increase significantly, one original partner died of a heart attack. The two original partners had made no provisions for the transfer of the business upon the death of a partner. The deceased partner’s wife inherited her husband’s shares, but the surviving original partner did not have the money to buy those shares from her. A new partner bought the shares from the surviving spouse. Together with the third partner, they changed the direction of the company and eventually forced the original partner from the company a few years later. Had the two original partners planned for this contingency by executing a buy-sell agreement tied with life insurance, the surviving original partner would have maintained control of the company.
Business owners who have a partner but do not have the cash to easily purchase their partner’s share of the business (or their partner’s share of the property if they share real property) should definitely consider planning to ensure the business transfers as they desire. Contact our law firm for a consultation to discuss your particular situation.
By the way, what was the name of the game cited in the example above? Perhaps you’ve heard of it—Dungeons and Dragons.