Through our 70 years of experience as Idaho estate planning attorneys our team has learned that estate-planning is far more than just having a Last Will and Testament. This is particularly true for those family members who own or are a part of a family business in Idaho such as a ranch, farming operation, or other type of business. In these circumstances, your estate plan should also consider and include a succession plan for your business.
Our team of Idaho estate planning lawyers can help you with your business succession planning. Our team is made up of partners Randy Budge and Lane Erickson and attorneys Nate Palmer and Dave Bagley, each of whom have obtained the highest rankings possible from several legal rating services. These services include Justia, AVVO, and Martindale & Hubbell, which create their rankings based on reviews provided by clients, other attorneys, and judges.
We are confident that we could assist you with your business succession planning. When considering how to give away your ownership interest in your business here are three things that you should consider:
1. Business Documents May ControlThe first and most important thing to think about if you are concerned with business succession planning is that the business documents involved in creating the business may control how the succession can occur. For example, if the business entity you are dealing with is an LLC in Idaho it will be controlled by an operating agreement. If your business entity is a regular corporation it will be controlled by its bylaws.
Regardless of whether it is an operating agreement or bylaws that you are dealing with each of these documents may contain specific restrictions or limitations on how you can gift or give away your ownership interest in the business. The reason for this is because you may not be in business alone. You may have partners or other business owners other than yourself. Those other partners or individuals in business with you may want to control who could potentially be in business with them if you were to die.
It is not uncommon for these documents to state that if an owner or partner of the company passes away their interest in the business will be bought out by either the business or by the remaining partners or business owners. These documents may provide a succession plan for purchasing your interest in the business. For this reason the most important place to start is by looking over the business documents associated with your business entity, to learn and determine what restrictions may exist on your ability to gift your business ownership interest to your family or other loved ones.
2. The Effect of Your Idaho Estate Planning DocumentsThe second thing you should understand is that even if there are restrictions on your ability to gift away your ownership interest in a business, your Idaho estate planning documents do have an impact on your business succession planning. If based on what we discussed in Section 1 above occurs, the only thing you will have to gift to your family or loved ones will be the money that is used to purchase your ownership interest in the business. In other words, once your estate is paid for your business interest, those monies will be distributed from your estate to your family or loved ones based upon your estate planning documents.
The basic estate planning document that deals with distributing your property, money and assets to others is a Last Will and Testament. This document gives you the ability to declare specifically who you want these items to go to and in what amounts.
However, in the event your ownership interest in a business is not bought out through a specific restriction, your Idaho estate planning documents, including your last will and testament will likely control who your business ownership interests will be given to. If you are not specific in your last will and testament about who your ownership interest will go to, then it is likely that it will be given based on the residuary estate clause. This is the section in your Will that is used to allow you to give all the rest and residue of your estate of whatever type or kind to whomever you choose.
3. Using Insurance to Fill the GapThe third thing you should understand is that one of the most common tools that is used in business succession planning is insurance. Life insurance for example, is often used as a way to fill in the gap between different family members or loved ones. The most common example is when you are giving your business away to your surviving children. It's more than likely that one or more of your children assisted you in building and growing the business by working there with you. However all of your children may not have been equally involved or even involved at all. Additionally, one or more of your children may have no interest in continuing to be or becoming involved in the family business.
When any of these circumstances exist, individuals often use life insurance to fill in the gap. What the individual does is gifts away the business to the children or family members who were actively involved and participating in the business. The life insurance is then used to pay money to those children or loved ones who are not actively involved in the business so that they will receive an portion of your estate.
The main reason for using life insurance to fill in the gap is so that the business itself will not have to be liquidated to provide a gift to the child who was not actively involved in the business. In other words, the business can continue to operate without going into debt or being in jeopardy of having to be sold in order to provide a gift to the non-participating child who will likely only want money anyway.
There is obviously a lot more to the process than these few paragraphs can describe. We are confident that we can assist and help you with business succession planning for your particular business and your family’s needs.
Enlist an Idaho Estate Planning Attorney to Help YouOur team Idaho Estate Planning lawyers can help you with any of your estate planning needs including your business succession plan. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at racine@racinelaw.net. We will answer your questions and help you solve your Idaho Estate Planning problems.