When a person starts a business, there are many things they need to take into consideration. One of them has to do with their estate planning. Nobody likes to think about what will happen when they pass away. The reality of life is that it will happen. If it’s not handled properly, a business owner will end up leaving their family and business a lot of problems. It’s best to have a plan in place that could take care of it. This will make it so the remaining owner or owners can continue operating the business, paying employees as well as providing goods and services to customers.
This happens after a business owner passes away. The person who the business owner designated as their estate’s executor will file the required documents with a local probate court. Should a business owner pass away without a will, an executor will be appointed by a judge. An executor will prove the will the business owner left is valid. They will also provide the court with a list of the deceased person’s assets and debts. Relatives and creditors will be notified. A will designates who is to inherit property and assets left in the estate after all of the decedent’s debts have been paid.
Assets Not Subject To Probate
The assets of a deceased person subject to the probate process are ones the decedent had only in their name. There are certain types of property that are not subject probate. This would involve any property the deceased business owner had in joint tenancy with another individual. This could include a building, bank account and more. This also applies to assets the decedent had placed in a living trust. Other assets not subject to probate are ones for a designated beneficiary. This could include bank accounts, life insurance policies as well as retirement plan accounts designated to be paid upon death.
According to the IRS, the executor or estate administrator will be responsible for filing tax returns for the decedent. They must also file income tax returns for the estate, which is usually done with IRS form 1041. The executor or estate administrator will also be required to get a tax identification number for the estate prior to filing taxes for it. This will be necessary if the estate has generated income of more than $600 during the tax year.
Business Succession Agreement
Should a business have a co-owner or co-owners, a business succession agreement might be a consideration. An attorney will know how to draft such an agreement. It can be designed so that upon the death of one of the owners, their interest is immediately bought by the other owner or owners. This is known as a buy-sell agreement. This can make certain beneficiaries of the deceased don’t automatically inherit an interest in a business they don’t want. A business owner with co-owner or owners can purchase life insurance or establish an irrevocable life insurance trust to provide a designated buy-sell agreement.
A person may want to make certain their business ownership transfers to their family when they pass away. This can be accomplished by creating a grantor retained unitrust (GRUT) as well as a grantor retained annuity trust (GRAT). This will accomplish the transfer of a business within a family. Should the assets in these trusts increase during the term of the trust, the appreciation won’t require any estate tax be paid on it. An experienced attorney such as one from a law firm like Jebaily will know how to structure these trusts.
Reality Of Probate
Death is part of life and something a business owner must make part of their plans for the future. A business person can start this planning by speaking with a knowledgeable probate attorney from an experienced law firm. They will know how to help a business owner achieve their goals for probate and other aspects of estate planning.