Levels of Business Succession Planning
Levels of Business Succession Planning

Levels of Business Succession Planning

A key part of estate planning for business owners who want to keep their business in the family is deciding when and to whom to transfer the business. The particular tools and techniques used in a business succession plan will vary based on the goals and objectives of the four groups affected by the plan: the senior generation business owner, the junior generation family members involved in the business, key non-family employees, and family members not involved in the business. It is important to examine how life insurance plays an essential role in the typical family business succession plan.

1. Estate Liquidity

While there is a present lapse in the estate and generation-skipping transfer taxes, it’s likely that Congress will reinstate both taxes (perhaps even retroactively) some time during 2010. If not, on January 1, 2011, the estate tax exemption (which was $3.5 million in 2009) becomes $1 million, and the top estate tax rate (which was 45% in 2009) becomes 55%. However, it is the author’s opinion that the estate tax exemption will be at least $3.5 million once Congress acts. https://diversiongeek.com

Some business owners will wait until death to transfer all or most of their business interests to one or more of their children. If the business owner has a taxable estate, life insurance can provide the recipients of the business with the cash necessary to pay estate taxes. Using life insurance to pay estate taxes is particularly useful for business owners because their ownership interests cannot be readily liquidated. The children receiving the business may also need life insurance to pay estate taxes. Usually, the insurance policy will be owned by an irrevocable life insurance trust so that the beneficiaries will receive the death proceeds both income and estate tax-free.

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