Minimizing the Tax Burden on Your Business Transition
For most business owners, the transition phase is bitter-sweet. On one hand, you might be looking forward to seeing the next generation take over so you can get some well-deserved rest. On the other hand, you are letting go of the responsibility and control over a beloved creation. It is this fear of letting go that stops many business owners from thinking about transition early in the life of their company.
Of course, those who fail to properly plan for the inevitable transition can run into plenty of unexpected problems, including excess business transition taxes. They may even be leaving their heirs with such a tax burden that holding onto the business becomes cost prohibitive. Fortunately, a good Boston business attorney can help you formulate a transition strategy to minimize these unwanted taxes.
Everything Starts with Effective Transition Planning
Just like building a solid business plan prior to opening, having a written transition plan is extremely important to the life of your company. This planning should start as soon as possible and should account for a variety of contingencies. Three major aspects of your plan should include: irrevocable trusts, shareholder agreements, and operating agreements.
Be Prepared for the Unexpected
In this context, the “unexpected” is anything that might push you into early retirement, such as illness, injury, or even death. Preparing for these events would allow the business will fall into an irrevocable trust to be passed on to the next generation. This will help shelter it from some of the tax burden.
If you hope to avoid this situation altogether, it is important that at least one of your children is part of the business already. This is where the shareholder and operating agreements come into play; they will allow him or her to take over as an owner and minimize the tax burden right off the bat. Furthermore, this allows you to better prepare your heir for the takeover when it does occur.
It is never too soon to start preparing for the inevitable transition of your business. This will give you time to consult with the proper advisors, including a Boston business attorney and an accountant, to construct the best possible plan. When it comes time to plan your family business transition strategy and you wish to seek out the best professional advisors to help overcome the challenges of business transition taxes, contact Scott Wittlin of Sassoon & Cymrot for individual guidance and consultation.