Estate Planning for the ProfessionalAlthough there are similar estate planning considerations and techniques between estate planning for the professional and nonprofessional (e.g., making optimal use of the marital deduction, expected growth in net worth), there is one asset unique to a professional—his interest in a professional practice or business. This may be in the form of a corporation, limited liability company, limited liability partnership, partnership or sole proprietorship. Often, the professional practice or business is THE principal asset in the estate.

If the professional practice or business has multiple shareholders, members or partners, a buy-sell agreement should be considered. If properly drafted, the buy-sell agreement will determine the value of the business interest or asset for the estate. This can take the form of a cross-purchase (surviving owners purchase the interest) or entity purchase (business redeems the interest).

When the professional is a member of a partnership, and the partnership wishes to survive the death of a partner, one of two methods may be implemented for planning a buyout of his interest:

  • Sale to surviving partners (cross-purchase) or
  • Liquidation of interest (entity-purchase or redemption).

Sole practitioners or single owner businesses present the greatest problems.  It is difficult to dispose of the business interest at death because, generally, the sole practitioner is instrumental, if not absolutely necessary, to the continued operations and success of the practice or business . Thus, it may be advisable to find a buyer prior to the business owner’s death and perhaps adopt a buy-sell agreement.  It may be also advisable to have the business owner’s interest transferred to a revocable living trust to facilitate both the continuity of the business interest and the buyout mechanics.