Many work hard and meet with success, as they batter through storms, handle market swings and keep consumers satisfied. You achieved all this for yourself and your family. But have you spent one minute and thought about what would happen to your business when you are not there? If you haven't, then it is high time you gave it a serious thought. So here are some simple business succession and estate tax planning strategies.
According to a market survey, 25 percent of the family business shareholders who are senior citizens have not thought of any estate succession planning other than writing a will. They have not bothered to conduct any research. If you are one of them then wake up, succession planning for business involves more than just deciding whom you intend to give your assets to, after your death.
Basically, succession planning is like a road map for successors, heirs and partners to follow when you are no more or when you are unable to handle the business issues due to disability or old age. This plan can include the business stock distribution, assets and life insurance distribution details. It can also include debt retirement services, buying and selling agreements between heirs and partners, division of responsibility allotted to successors and any other aspects that would be related to the business. The plan can also establish the value of the business.
So where should you start from?
A succession planning strategy must clearly explain your objectives and goals as well as your company's present financial resources and the current human resources. It should also explain your stand in the company and the details of the stock you hold. You can also mention the person whom you feel can manage the business once you are out of the picture. Calculate if you have enough assets to pay estate tax so as to balance the estate and keep the business and the monetary resources you need to reach your financial goal. Don't forget to clarify each goal and you should be open to communicate and share your vision with partners, key players, and family.
How to develop a sound succession plan?
. A succession plan should be flexible- Your plan must be easy to amend and modify as business, family and health situations are dynamic.
. Select the right individual to handle the company in your absence- Select a person, whom you find capable to navigate through the minefield. This is necessary if you have more than one qualified successor. Distribution of money and assets among the siblings sometimes can be really discordant.
. Knowledge of federal estate tax- Economic Growth and Tax Relief Recognition Act of 2001 attempted to eliminate or reduce the federal estate tax transfer system, but instead it created a tax system that features repeal, relief and reappearance. From 2004, the gift tax exemption was freezed at $1 million. Thus, a businessman can easily pass on more assets after his death than during his lifetime.
Learn about various exemptions, deductions, exclusions- You can reduce the estate tax by adapting the annual gift tax exclusion in which you can relax the gift tax to the tune of $11,000 per year.
