Estate Planning Tips for Business Owners

Many people, business owners and everyone else, are concerned about the federal estate tax when creating their estate plans. Although the federal estate tax is 40%, it does not apply unless the decedent has an estate worth over $5.34 million, and the estate amount is doubled if the person is married. However, there are other concerns besides the federal estate tax that a business owner should take into account when creating an estate plan.

Other State and Federal Taxes

The estate tax should be the least of a business owner’s worries when creating an estate plan. Before an estate tax is even considered other state and federal taxes are first deducted from a business and the estate. The federal income tax rate on an equity owner of a business can top out at 44.6%. State income taxes compound the issue by charging even more on an equity owner’s share. A business owner should first try and minimize the damage done by income taxes on his estate before dealing with the possibility of an estate tax.

Living Issues

Before creating an estate plan that involves a business it is important to consider how issues that arise during life could affect the business after a death. For example, after the announcement of his cancer and subsequent death of Apple founder Steve Jobs the stock in the company plummeted. Another issue that may arise is the founder of the company spending all of the equity for senior and long-term care. These and other risk management issues must be addressed first before any kind of effective estate plan can be enacted.

Asset Transfers

A business needs to have a solid plan in place for asset and stock distributions after the death of an equity owner. Loss in share value can occur from issues in probate, problems in the boardroom, and the simple passage of time. If the distribution of wealth is anticipated and prearranged in the estate plan less of the wealth will be lost in the actual distribution.


A business owner needs to provide liquidity in his estate plan for the continuation of the business. After the death of an owner the business will still have bills to pay, creditors to appease, benefit plans to fund, and need money to supplement any lost revenue. When liquidity is not arranged in the estate plan assets are usually sold at a discount in order to quickly pay the bills. However, if it is planned for in the estate there will be plenty of liquid assets to pay off all debts and still have distributions available for the heirs.

Family Issues

One of the largest hidden problems for a business owner when drafting an estate plan comes from the family. Sometimes the biggest predator to the business is a family member who got the least in the rest of the estate. A business owner can avoid this issue if the estate plan establishes a solid post-death business transfer to the correct heirs.

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