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Estate planning for business owner gives ordered succession

Estate planning in California and elsewhere is a process that benefits a business owner who wants to assure a smooth transition at the time of his or her retirement or death. Some specific estate planning tools are particularly applicable for small, closely-held businesses that are structured as corporations, partnerships or LLCs. The vehicle commonly used is called a buy-sell agreement.

As its name implies, the owners of the business execute the buy-sell agreement to provide for a smooth transition where an owner wishes to retire or where an owner dies. The agreement provides a specific procedure for the sale of that person's share in the business. The agreement generally gives the remaining partners or owners the first right to purchase that person's share. There are formulas provided for determining the value of that share.

The proceeds may then go through the deceased owner's will, to a specified trust, or may be made directly to the owner who has retired. The purchase of the deceased or withdrawing owner's share is sometimes financed by life insurance paid by the company on the life of each owner. The insurance policy will be set up to accommodate the terms of the buy-sell agreement.

The agreement establishes an orderly procedure in California or the applicable state for disposition of an owner's share in a closely held business. It is also helpful in setting the value of the person's business share for tax purposes. It should be noted that if the agreement makes the purchase optional, then where the option is not picked up by the remaining business owners, there are usually provisions in the buy-sell agreement for making a public or private sale of that interest in an orderly manner. It is notable that all the other estate planning instruments, such as wills, trusts, powers of attorney and the like, are still necessary for the individual owner's convenience and protection.

Source:, "Estate planning provides protection for business owners", Sumer Rose-Nolen, Jan. 11, 2018

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