Estate planning is not a “one-size-fits-all” endeavor because different situations call for different estate planning strategies. This is one of the reasons why it is always advisable to retain the services of an experienced estate planning attorney when you get serious about planning for the future. There is no reason why the ordinary layperson would be aware of all the options that are available. Estate planning lawyers have the expertise and experience that it takes to understand exactly how to proceed under an individuals unique circumstance.
One of the tricky situations that arise involves estate planning for partners in small businesses. If you were a partner in a small business and you were to simply leave your share to your family, what would they do with it? It is possible that someone in the family would want to assume your day-to-day role in the business, but your partners may not feel comfortable with this arrangement. If your family simply sold its share to the highest bidder your partners would have no say in the matter, and this is not a good position to be in as a small business owner.
The way that these situations are usually handled is through the execution of buy-sell agreements. The two most commonly used buy-sell agreements are the cross purchase plan and the entity plan. With the cross purchase plan each partner purchases an insurance policy on every other. Should one of the partners die, the proceeds from the insurance policies are used to buy that share from the family of the deceased.
The entity plan is implemented by the business entity itself purchasing insurance policies on all the co-owners. Once again, upon the death of one of the partners the insurance policy benefits are used to buy the share of the deceased partner from his or her family.
To gain a deeper understanding of small business succession planning, take a moment to arrange for a consultation with a qualified estate planning attorney who also has a background assisting small business owners.