How Business Owners In New York Can Protect Their Assets Through Estate Planning

In this article, you can discover…

• Why estate planning is crucial for you as a business owner.
• What a buy-sell agreement is, and how it serves small businesses.
• How to mitigate legal disputes when your business is handed over to heirs.

Why Is Estate Planning Crucial For Small Business Owners?

Estate planning helps ensure the continuity of your business. Many small businesses rely entirely on the business’s sole owner. Should something happen to you, without a clear succession plan, your small business could falter. The tax implications for your loved ones could be serious, and if you die without a will, your business could be handed over to someone you did not intend.

Estate plans also help your loved ones sell the business quickly, should that be your wish. If there are delays to this sale, your business could lose significant value, robbing your family of needed funds. Having a clear estate plan in place helps expedite a sale.

Can A Business Asset Protection Trust Safeguard My New York Company From Lawsuits And Creditors?

In New York, the best option available to most small business owners is an irrevocable trust, as New York does not offer true domestic asset protection trusts. Alternatively, you could set up an asset protection trust in a state that offers this legal tool, such as Delaware or Nevada.

Creating a trust of either type moves your assets out of your name and personal ownership and transfers that ownership to the trust. The trust is then managed not by you but by a trustee. This puts any assets owned by the trust out of the reach of your creditors and any future lawsuits filed against you.

Indeed, having your assets in a trust, especially an out-of-state asset protection trust, can help deter lawsuits, as plaintiffs will be more limited in the assets they can seek.

What Is A Buy-Sell Agreement, And Why Is It Essential For Small Business Co-Owners?

A buy-sell agreement acts similarly to a pre-nup for your small business. It is a legally binding contract between two or more co-owners of a business that dictates what would happen to one of the owner’s shares in the business if they were to pass away, become disabled or incapacitated, or want to retire from the business.

The agreement prevents ownership chaos or disputes in terms of the continuity of your business. Without a buy-sell agreement in place, each owner’s share in the business is handed over to their family when the owner passes away. Does the remaining co-owner want to share ownership with the deceased party’s children or spouse? If not, an agreement can avoid this situation and map out an alternative plan.

Attorney Paul Hyl is a knowledgeable, trusted estate planning attorney serving New York. For over 20 years, he’s helped clients just like you plan to pass on their business to the next generation and take steps to ensure the health of their company for years to come.

Have questions, or in need of legal help? Reach out to Hyl Conte Law, PLLC for a free initial consultation today.

Succession planning lays out a roadmap for transferring ownership. It determines who the new management of your small business will be, helping minimize disruptions and preserve the value of your business. For a small business on Long Island, having a good succession plan in place is like handing your heirs the keys to a well-maintained car with a full tank of gas and a GPS instead of leaving them to figure out how to jumpstart a clunker.

A good succession plan not only names your replacement but prepares them to take the reins. For example, if you run a bakery, you would want to teach your heirs the recipes and who the vendors are so that if something should happen to you, they can hit the ground running.

Finally, planning can help minimize the taxes your business pays. Transferring shares of the company out of your name during your life can help lessen the tax impact on your heirs and make the transition to the next generation smoother.

How Can I Ensure My Business Passes To My Chosen Heirs Without Legal Disputes?

First, you must create a will or a trust to highlight which of your children or other loved ones will inherit your business. If you co-own the business, you should also have a buy-sell agreement in place.

Update your operating agreements and your bylaws to reflect the eventual transfer. If you transfer shares of the company to heirs before during your life, consider restricting their ability to transfer those shares to keep those assets within your family.

Having said that, the best way to reduce legal disputes is to communicate. Communicate your plans to your family, co-owners, and employees. Make sure your children know which of them is inheriting your business to minimize disputes and strife. Let your children who will not inherit the business know how they will be provided for, as well. Make sure your business partners know your plan, too.

Notes From The Field: Business Estate Planning Mistakes To Avoid

One of the biggest mistakes that you can make as a business owner is not to update your business succession plans regularly. I once handled a case involving two business partners. One was 20 years older than the other, and neither of them had updated their buy-sell agreement in 14 years.

This meant the business was valued at only $2 million in the agreement and simply required the surviving partner to pay half of that amount to the deceased partner’s family.

Once the older owner passed away, the business worth was $200 million. This created an immediate conflict, as the older partner had several children who certainly wanted and expected more than half of $2 million. The issue was resolved, but properly updating those documents as the business grew would have allowed everyone involved to stay ahead of the issue and avoid conflict.

Plan ahead, and then make sure your plans are updated to reflect business growth, present valuation, and inflation.

Still Have Questions? Ready To Get Started?

For more information on Estate planning for business owners in New York, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (877) 200-6845 today.