If you own a Fitchburg small business, you have undoubtedly spent a significant portion of your life growing the business to the point where it is at today. If you now have a valuable financial interest in the business, you should take the time to consider how you plan to handle the business in the event of your death. While deciding whether to sell the business or pass the business on to loved ones is important, deciding how to handle the sale or transfer is of equal importance in order to avoid, or limit, any corresponding estate or gift taxes.

• Sale of Your Business: Numerous options are available to plan for the sale of your business. An outright sale can be planned to take place at a specific time, such as at the time of your death, by entering into a buy-sell agreement, for example. You may also use a private annuity or self-canceling installment note. As long as the sale is for the fair market value of the business, and completed before, or at the time of death, you will avoid estate and gift taxes — but may incur capital gains taxes.
• Trusts: Another option is to use an irrevocable trust in the form of a grantor retained annuity trust (GRAT) or grantor retained unitrust (GRUT) for your business. A GRAT or GRUT provides a yearly annuity payment to you during the life of the trust and then transfers the remaining assets upon termination of trust to the beneficiaries. The benefit of a GRAT or GRUT is that the assets transfer at a reduced valuation.
• Forming a Family Partnership: Entering into a partnership with a family member allows you to retain control of the business as the holder of the general partner interest while gifting the limited partnership interest to your family member over time. The transfer of the limited partnership interest may be eligible for valuation discounts as a minority interest, thereby decreasing your tax exposure.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

If you are a partner or shareholder in a small business, you should understand what a buy-sell agreement is and how one operates. A buy-sell agreement is a small business estate planning tool that is frequently used to protect the business upon the death or incapacity of a partner or shareholder as well as to protect the financial interest held by the partners or shareholders.

Simply put, a buy-sell agreement is a legal agreement that sets forth the terms upon which your share of the business will be sold upon the occurrence of a triggering event — generally your death or incapacity. By executing a buy-sell agreement prior to your death or incapacity, you accomplish two important objectives.

First, the continuity of the business is assured. If you die, or become incapacitated, in the absence of a buy-sell agreement, your interest in the business becomes a matter for a court to sort out in many cases. In the meantime, the business may suffer and the value of your interest may decrease. By executing a buy-sell agreement, the legal status of your interest in the business is pre-determined. Upon the occurrence of an included triggering event, the agreement kicks in and the business can continue uninterrupted.

Second, a buy-sell agreement protects your own interest in the business. A buy-sell agreement is binding on the buyers as well as the seller. If you become incapacitated or die unexpectedly, for example, the other partners or shareholders will be legally bound by the terms of the agreement to purchase your interest in the business. The proceeds can then be used to take care of you or your loved ones.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

A Limited Liability Company (LLC) is one among many forms of ownership available to those who own a business.

If you have one or more co-owners, then an LLC functions almost like a hybrid between a corporation and a partnership. If you’re a sole owner, then an LLC works more like a combination of a corporation and a sole proprietorship.

Benefits of a Limited Liability Company

There are two main benefits to choosing to operate as an LLC. First, an LLC offers protection from liability that a sole proprietorship or partnership doesn’t offer. When you’re in a partnership, or you’re operating as a sole proprietor, if someone sues you in a business capacity, not only are your business assets vulnerable, your personal assets could be on the line as well.

A properly operated LLC, on the other hand, puts up a barrier between your business assets and your personal assets. This is much like the protection a corporation offers from liability. An LLC can serve to keep your personal assets from vulnerability to business lawsuits and to the claims of your business creditors.

The second main benefit offered by an LLC is that, compared to a traditional “C” corporation, taxes are greatly simplified. LLC’s are eligible for “pass through” taxation, meaning that the organization itself isn’t taxed – instead, you as a member of the organization pay taxes on the income you receive from the LLC. This lets you avoid the “double taxation” that applies to “C” corporations, under which corporate profits are taxed, and dividends paid to shareholders are also taxed.

Drawbacks of a Limited Liability Company

As compared to operating as a sole proprietorship or partnership, forming an LLC requires a little extra planning and paperwork. For instance, you’ll need to file organization documents with the Secretary of State. Plus, it might not be the best option for your particular circumstances.

The LLC is only one among a number of business forms available to business owners. You’ll want to consult with an experienced attorney to uncover all your options and choose the appropriate business form for you.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

If you own a small business, odds are you’re like most other entrepreneurs. You’ve put your heart and soul into starting and growing your business, but you haven’t put much thought into what would happen to your business if you were to suddenly pass away. And that’s unfortunate, because a well-though-out succession plan can be critical to the survival of your business.

Here’s what you need to do to get a succession plan in place:

• Decide who will take over. Make sure you know who will take your place if you pass away or reach a point where you’re unable to run your business. Also, make sure that your replacement is ready, willing, and able to take over for you. And make sure that your employees know your plan – especially if you own a family business.
• Find a Trusted Advisor. Enlist the help of a qualified estate planning attorney to not only help you formalize your plan and put it in writing, but also to help make sure you understand all the implications of your plan. If you choose an attorney you trust and feel comfortable with, he or she will be able to advise you on issues such as how your business succession plan and personal estate plan interact, and the tax consequences of any decisions you might make.
• Understand the Tax Implications. Many small business owners don’t realize the toll that estate taxes can take on the well being of their business. But, with the estate tax scheduled to make a comeback in a few short months, it’s a definite concern. Your estate planning attorney can advise you as to the current estate tax exposure of your business, and suggest some strategies for limiting your tax exposure.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.