Estate Planning for Business Owners in New York
When a business owner dies with no estate plan in place, the survivors are left with little direction on how to proceed. Therefore, the estate planning process should be undertaken by every business owner who wants to control the direction of his or her business after death. Below is an overview of some common business estate planning strategies and tools.
Buy-Sell Agreements – A buy-sell agreement is a contract between shareholders or partners in a business that lays out a plan for the business in case one of the owners becomes incapacitated or dies. One benefit of buy-sell agreements is that they establish sales prices for both the business and individual shares of the business. Buy-sell agreements allow business owners to address issues such as:
- Whether business partners are permitted to purchase the deceased owner’s share
- Whether certain individuals will be blocked from having a future role in the business
- Whether the business owner’s heirs are permitted to sell his or her portion of the business
Tax Minimization – Estate planning is a good way to minimize estate taxes. In the absence of proper estate tax planning, a business could face a potential tax liability of 35 to 50 percent of its total value. Luckily, several IRS tax breaks can help alleviate the tax burden for small business owners. The most common of these tax breaks are located in Sections 303 and 6166 of the tax code. Section 303 allows an estate to redeem its stock with minimal tax consequences, but it may only be done once, and the value of the stock must be at least 35 percent of the total estate.
Section 6166 provides small business owners with a method of deferring estate tax. In order for a small business owner to take advantage of of this tax break, more than 35 percent of his or her adjusted gross estate must be related to business interests. Eligible estates are permitted to pay the estate tax in 10 annual installments, and the first installment isn’t due until 5 years after the business owner’s passing.
Life Insurance – Life insurance is an excellent estate planning tool, as it allows partners in a business to purchase a deceased partner’s shares. In order to take advantage of this estate planning method, partners in a business each take out a life insurance policy that names the other owners as beneficiaries.
New York Estate Planning Attorneys
At O’Connell and Aronowitz, we provide individuals in Albany, Latham, Plattsburgh, Saratoga, and upstate New York with sophisticated estate planning guidance, including the preparation of wills, trusts, and other essential services. Estate planning is essential for everyone, regardless of financial status, in order to protect oneself and provide for loved ones. At O’Connell and Aronowitz, our experienced New York estate planning attorneys will work closely with you to develop a comprehensive estate plan. Please contact us for a consultation.