Often times our Chicago estate planning attorneys find that the closely-held business, or small business, is often the primary asset of a client’s estate. Thus, careful estate planning for the business owner is critical and often presents special opportunities and challenges. While planning to minimize estate taxes, the business owner also faces the challenge of selecting a suitable successor to operate the business – aka business succession planning. Such business succession planning is complicated by the inherent difficulties associated with the valuation of the business owners small business interest and the business owner’s family dynamics. The probability that the owner’s small business interest is not readily marketable also forces the business owner and the Chicago estate planning attorney to focus on the importance of, and the need for, providing liquidity in the estate when estate planning for the business owner.
Among the problems estate planning for the business owner is how to replace the business income that has supported his or her family. Often, the small business that the owner has worked so hard to build must be divided among children who have assumed some operational control or participation in the business during the business owner’s lifetime. In many cases, the business owner must plan for the transfer of control and ownership of the business to children while at the same time arranging for the support of their surviving spouse. In some situations this balance may be difficult to achieve, especially when the business owner has played a key role in the success of the business and cannot be easily replaced by their children or by key employees. Further, the estate plan may be further complicated because some of the owner’s children may not be involved in the business while other children are substantially involved. The owner may want the business transferred to the children who are involved in the business while equalizing the inheritance of other children with other assets.
Proper estate planning addresses the considerations mentioned above and many others, and allows the business to be transferred and maintained according to the business owner’s wishes. A smooth transition may be facilitated by the careful structuring of the business in an appropriate type of business entity and by the use of a shareholder agreement, partnership agreement, or operating agreements. Shareholder agreements, partnership agreements, or operating agreements, if drafted appropriately, most always contain specific buy-sell provisions (or the buy-sell agreement may be a separate ancillary agreement working together with the shareholder agreement, partnership agreement, or operating agreement).