Small or Family Business
The Charitable Remainder Trust for Business Owners: Something for Everyone
(excerpted in part from Looking Ahead with Living Trusts, Mallard Pub., 1996, by Griepp & McRee)
It may sound too good to be true, but there is a way to benefit your favorite university, hospital, church, or charity, while receiving favorable tax treatment and guaranteeing income for yourself and/or others, for a period of many years.
If you are the owner of a business that has substantially appreciated in value under your care and management, you can carefully and creatively give it away, using an estate planning technique that will provide you with the funds you desire for a comfortable retirement, to educate children or grandchildren, to invest, or even to start another business. It's called a charitable remainder trust.
Common Types of Business Continuation Agreements
Entity Purchase or Stock Redemption Agreement
The entity purchase of stock redemption agreement is an agreement between the stockholders and the corporation that usually provides for the sale of shares during the lifetime of a stockholder, and also upon the death or disability of a stockholder, at a predetermined price. If a stockholder wishes to sell stock during his/her lifetime, he or she must first offer it to the corporation. If a stockholder dies or becomes disabled, the corporation must purchase his or her stock at the agreed-upon price, if asked to do so.The Family Limited Partnership: A Controlled Business Transfer
A family limited partnership is different from any other partnership, because only family members can hold “limited” partnership interests. A limited partner is one who has an ownership interest in a business, but has no formal control over its operation. Limited partners may, as a matter of practice, be engaged in the day-to-day affairs of the business, even serving in management positions, but when it comes to the “last word,” the general partner(s) has exclusive control.
Taking Care of Your Family Business
How do you plan for the ultimate disposition of your business, including ownership and control, after you have passed away? Will it be run by your children, your spouse, valued employees? Will the business be sold to family or to outsiders? Will it fail because you are the glue that holds it together? Will your affairs be tied up in probate court indefinitely, leaving the business poorly supervised and in danger of failing?
The issues of planning the succession of ownership and/or management of your business are complex, and will present a continuing challenge for many years to come. You may feel overwhelmed by the choices you have to make, and because the business planning process is ongoing, your may have to revisit your choices as your life unfolds. Business succession planning is not a one-shot event, but requires your commitment to review and revise. Unless you develop and implement a plan, the law and taxes will act on your behalf, usually to the detriment of your heirs.
Business Succession Planning: Is Your Legacy At Risk?
The question of who will take over the reins, when the entrepreneurs and business owners of the 1970's and 80's reach retirement age, will be a major concern at every level of American business as we move into the 21st century. So says a survey of CPAs, conducted by the American Institute of Certified Public Accountants (AICPA).
More than 58% of respondents to the survey, which was sent to 4200 CPA/consultants in every area of the country, ranked inadequate succession planning as the biggest threat facing small to mid-sized businesses.*
