Business Succession Plans: Expert Wills, Trusts, Tax Planning
- by San Diego Law Firm

Help planning for future transfer or sale of business to get greatest tax and financial savings, benefit your retirement, your family's future

San Diego Law Firm can create a business succession plan with you that will help secure your retirement income, protect your family's financial future, and limit estate taxes and probate costs.  Whether you're planning to eventually sell your business to a partner or co-owner, or sell or transfer it to one or more members of your family in an organized way, we can assist you in making your vision a reality.

Overview of Business Succession Planning

Succession planning has three main focuses:

1. Retirement needs of the owner(s)
2. For family businesses, any transfer to other family members
3. Protecting all owners and their families in the event one owner dies or departs

The succession plan created with you by San Diego Law Firm can help preserve the value of your business and smooth the transition of the business to another owner.

1.  Retirement Needs of the Owners

Retirement plans

There are many types of retirement plans; the best type for your business will depend on the size of the business, whether the business has non-owner employees, and the retirement goals of the owners. 

San Diego Law Firm can advise you on the best retirement plan for your business, and can then refer you to a professional administrator who specializes in setting up retirement plans. 

A retirement plan lets the business owners set aside current income before taxes to provide for their retirement at a later date.  Common small business retirement plans are:

401k	A “401k Plan” allows you to make contributions that can grow tax free until withdrawal, and will let you contribute more after age 50, helping you catch up your retirement savings.  This plan doesn't require you to match employee contributions, which is helpful if you can't make a contribution in a given year.  However, we will help you carefully consider this option, since you will often be faced with substantial penalties if you make early withdrawals prior to age 59 ½.
Individual (“solo”) 401k	An “Individual (‘Solo') 401k” also allows you to grow money tax free until withdrawal and doesn't obligate you to make a contribution.  Additionally, it provides for potentially greater contributions and tax deductions, and lets you borrow against your plan with loans that may even be tax free to an extent.  A solo 401K can only be set up by an owner when the business has no other employees, other than an employee-spouse.
Keogh plan (money purchase/profit sharing plan)	A “Keogh Plan” (money purchase/profit sharing plan) provides you with the opportunity to make tax deductible contributions, and if your Keogh plan is structured as a profit sharing plan, you will have a great deal of flexibility in choosing to make contributions.  Depending on your particular situation, you might benefit more from a money purchase Keogh, which allows for higher contributions yielding greater retirement savings, but you will be obligated to make annual contributions.
Defined benefit plan	A “Defined Benefit Plan” provides retirees with a predetermined monthly benefit that is either a set dollar amount or calculated by a specified formula.  A defined benefit plan requires you to make contributions, even in an unprofitable year.

Retirement plan options may seem endless, but we will help you choose the plan most likely to provide you with present benefits and a secure retirement.

Structuring business for eventual sale to an outsider

If you plan to sell your business interest to an outsider when you retire, San Diego Law Firm can help you structure your business to make it easier and more profitable to transfer.  To obtain the greatest tax savings, we advise our clients to begin planning well in advance of any transfer.  We can help you in all aspects of this planning and the eventual sale.  For more information, please see the section in this website on “Sale of a Business.”

Planning for Transfer to a Family Member

If you have one or more family members who are motivated and competent to take over your business, San Diego Law Firm can help you plan a well-thought out transfer of your business in a way that will allow the business to keep running smoothly, minimize your tax liability on transfer, and avoid disputes between family members. 

Some of the common methods of transferring a business to family members that San Diego Law Firm can advise on and assist with include:

1. Family Limited Partnership or Family Limited Liability Corporation

A family limited partnership or family limited liability corporation may be owned by the current business owner(s), the family members, or a trust.  Each form of ownership has different benefits

Our experienced attorneys will counsel you on how these business structures can protect your assets from lawsuits and generate significant estate tax savings by making a series of strategically planned lifetime gifts to family members of interests in your business.  Especially valuable is that a family limited partnership or corporation gives you the opportunity to strengthen your business financially, which in turn strengthens your retirement security.  It's often beneficial to hold your business interests in a trust to maximize asset protection, and to create a plan that effectively spreads income to minimize income taxes.

You'll be providing for your loved ones and keeping your business in the family, all while maintaining your control over the business, even as ownership is gradually transferred.  As your personal legal representatives, we will ensure that in planning for the succession of your business you don't lose sight of the big picture.  In this regard, some important considerations can include determining which family members should and shouldn't be given management control, possible capital gains liability for family members, how to fairly distribute interests to preserve family unity. 

2. Business Continuation Agreement

Business continuation agreements usually coupled with a will or living trust. They are vital to minimizing foreseeable problems and ensuring continuation after a business owner dies or otherwise no longer runs the business.  At San Diego Law Firm, we will help you maintain control and avoid uncertainty by crafting an agreement that smoothly transitions ownership in step with your goals.  Additionally, a business continuation agreement can reduce the estate tax owed by setting the business's value, provided legal requirements are complied with. 

Depending on your situation, it may be beneficial for your business continuation agreement to require the participation of all involved as a condition to allowing your agreement to be modified, giving you assurance that your business will remain intact.  We will also include safeguards to protect your family interests before the transfer takes place, and proactively add solutions to the agreement to prevent jeopardizing your business's successful continuation.

When One Owner Dies or Departs: Protecting Remaining Owners and Families

If the business has more than one owner, a buy-sell agreement that sets the terms of the sale and a method for valuing the business should be negotiated and formalized as soon as your business is well-established.  The buy-sell agreement can then be modified or updated as your business grows and as you get closer to retirement.  San Diego Law Firm has substantial experience in drafting these agreements, and can advise and assist you in creating a buy-sell agreement right for your situation.

A buy-sell agreement helps to minimize the tax burden on an owner who retires or departs from the business, and make it easier to value the business on that event.  It can also help to protect the remaining owners from financial loss if a co-owner dies or becomes disabled, and provides a way to buy out the former owner's interest for the benefit of a departing owner, or the family of a deceased owner.

Buy-sell agreements are typically funded by the purchase of permanent (whole) life insurance on each owner, with the remaining owner(s) as the beneficiary on each policy.  The life insurance is generally supplemented with disability insurance on each owner.  Because the value of a permanent life insurance policy takes time to build, it is important to identify other funding mechanisms which could be used if necessary to buy out a departing owner before the permanent policies mature.  This may be a line of credit secured with assets of the business or the owners, a loan taken from retirement accounts of the owners, or other assets available to the owners.

San Diego Law Firm can advise you on and prepare the buy-sell agreement that best fits the needs of your business and its owners. Buy-sell agreements are generally coupled with a will and living trust for each owner; San Diego Law Firm is highly experienced in preparing these, as well. 

Will and Living Trust.

Business continuation agreements and buy-sell agreements work best when coupled with a will and living trust. If the business has a substantial value, additional tax planning will be needed to make sure an owner's family members do not have to sell the business to pay estate taxes if the owner passes away.  San Diego Law Firm can handle all of these problems for you, with our highly personalized, hands-on will, living trust, and estate planning services. For more information, please see our Will, Trust and Probate website.

Benefits to Our Clients

We are committed to keeping our business clients fully informed and offering them the guidance and support they need to make good choices between different legal alternatives.  San Diego Law Firm will ensure that all of your legal matters are supervised by a seasoned senior partner who will act as your Personal Legal Representative and oversee your legal affairs, even if another attorney is performing a particular service for you. For as long as we represent you, you will receive the same dedication and quality of service that brought you to us in the first place.

How to Contact San Diego Law Firm

We handle matters throughout California, and new clients are always welcome. For more information or to make an appointment, please contact us either by:

Telephone: (619) 794-0243

E-mail: contactus@SanDiegoLawFirm.com
 

We can be reached by telephone Monday through Friday, 9:00 a.m. to 5:00 p.m. You may also use the form below to contact us. This form is answered Monday through Friday during the work day. Please remember that for us to become your attorneys, we must first have a written attorney-client agreement signed by both of us, so please do not email any confidential information at this point. After we have reached an agreement with you, we can then exchange information freely. We look forward to helping you.

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