Transitioning the ownership and leadership of a family or closely held business is one of the most critical—and complex—aspects of estate planning. Without a clear plan, the future of the business can be jeopardized, leading to disputes, financial strain, or even the loss of the business itself. 

A well-crafted succession plan ensures the continuity of the business and minimizes disruption. Start by identifying your goals: Will the business remain in the family, or will it be sold to a third party? If family members are involved, assess their interest and ability to lead. Begin planning years in advance to allow for training and a gradual transition.

A buy-sell agreement is a foundational tool in business succession planning. It’s a legally binding contract that outlines how ownership interests will be transferred in the event of retirement, death, disability, or another triggering event. This agreement provides clarity and helps avoid conflicts among owners, heirs, and other stakeholders.

Key elements include:

• Valuation Mechanism: Establish a fair method for determining the value of the business.
• Funding Arrangements: Use life insurance or other financial resources to ensure funds are available for the buyout.
• Triggering Events: Specify the circumstances under which the agreement takes effect.

Further, for businesses with essential employees, retaining and incentivizing key staff during a transition is vital. Consider implementing incentive plans to motivate employees to stay and support the transition, or retention agreements that provide financial or other benefits to employees who remain with the company through the transition period.

Business succession planning often involves significant tax implications. Techniques like gifting ownership interests or using valuation discounts can minimize tax liability. Trusts, such as grantor retained annuity trusts (GRATs) or intentionally defective grantor trusts (IDGTs), are also effective tools for transferring business interests while reducing estate taxes.

Additionally, estate equalization can address fairness among heirs. For instance, if one child inherits the business, others might receive assets of equivalent value to balance the distribution.

Lastly, clear communication with all stakeholders—family members, employees, and co-owners—is critical. Regularly review and update the succession plan to reflect changes in the business or family dynamics. Transparency helps manage expectations and fosters trust, reducing the likelihood of conflicts.

Effective business succession planning requires time, thought, and collaboration with experienced advisors. By taking proactive steps and considering the needs of all stakeholders, you can ensure your business continues to thrive and your legacy endures for generations to come.

The post Navigating Business Succession Planning appeared first on Desert Law Group | Kimberly T. Lee.

According to this article in USA Today, more and more people are getting creative in their schemes for happiness, and many are doing so by starting small businesses after they are laid off from large companies. In fact, a small business is not at all a bad place to be right now, considering President Obama’s recent announcement regarding ”a small-business financing plan that includes reduced loan fees and incentives for banks to do more lending.”

If you are one of these brave people who have chosen to combat economic conditions by creating your own small business, remember that going from being an employee to being “The Owner” brings with it many changes, not the least of which are changes in your estate plan. Small business owners tend to be less liquid than traditional employees, putting much of their earnings back into the business for growth, which means estate planning for business owners requires a different strategy than for other families.

Whatever your scheme or situation, our firm can help you create the right plan to protect your assets and your family.

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In an article entitled “Covering Your Assets” Journal writer Mark Klimek asserts that despite some IRS opposition, tax court rulings in recent years have endorsed the use of FLPs when they are used to preserve a family business for future generations.

“Setting up such a partnership could be especially useful right now for families with businesses,” according to the article. “The Obama budget calls for the estate tax to be restored next year at a rate of 45 percent for estates worth more than $3.5 million, or $7 million for couples. Income-tax increases for high earners are on the agenda as well.”

The article goes on to describe many of the dos and don’ts of FLPs, but of course each family’s situation is special, and you should consult an estate planning attorney before making decisions about any specific strategy.

In any case, the time to act is now. According to one expert quoted in the Journal article, “There’s a realization that any kind of estate planning you can do this year is good, because 2009 will probably end up being the most favorable year for taxes ever.”

The post Family Business? You Might Flip For A FLP appeared first on Desert Law Group | Kimberly T. Lee.

In a time when big businesses are dumping cargo like crazy just to stay afloat, the small, independently owned businesses—which are less top-heavy and have fewer overhead expenses—are perfectly positioned to make it to the finish line.

If you are planning to jump in and start your own business, desire and a dream will only get you so far. You also have to have a plan. Steve Leer states in his article that your entrepreneurial success depends on how much forethought you’ve put into your business. Unfortunately, this is where new entrepreneurs can tend to get stuck. Our firm can help you get past the daunting early stages of writing a business plan, filing paperwork, and creating entities; leaving you to enjoy the active part of your business—working with clients or customers, hands-on creation, artistry, or production.

Our firm finds inspiration by helping our clients achieve their goals. Let us help you do what you find inspiring as well.

The post How to Find Success in Tough Times? Do What You Love appeared first on Desert Law Group | Kimberly T. Lee.

But not all small businesses are created equal, and we aren’t the only ones who think so. A new study by the Wall Street Journal itself found that “entrepreneurs who engage in business planning early on are more likely to… get a business off the ground.” The article focuses mainly on a business plan, which is indeed one of the most important start-up documents you can have, but advance business planning can include these other documents as well, many of which require experienced legal advice:

• Operating agreement

• Legal partnership agreement

• Articles of Incorporation

• Bylaws

• Operations Manual

If current economic circumstances have you thinking about starting your own business, come into our office and let us help with the advance planning. We care about our clients, and are invested in seeing you accomplish your goals. We want to help give you and your business the best possible chance for success.

The post Advance Business Planning is the First Step to Success appeared first on Desert Law Group | Kimberly T. Lee.

As we all know, the world is a different place now. Very few people stay at one company longer than a decade, and not even that long if you’re under the age of 30. There is, however, one exception to this… if you’re self-employed.

As an estate planning firm, we meet with a good number of self-employed clients and small-business owners, and one of the most important things we can convey to these clients is how very, very important it is to have an effective estate plan. As S. du Plessis states in her article Estate Planning for the Self Employed: A Helpful Guide, “I am so responsible in other areas of my life, I feel compelled to be responsible about my death too. Plus, I hate to fail, and those who fail to plan. . . fail. So in fairness to my husband and children and because I own a business (which complicates my estate), it’s time to come up with an estate plan.”

Du Plessis is absolutely correct that failure to plan—especially for small business owners—can have disastrous consequences for both their families and their businesses. When you are so responsible in all other areas of your life, why let the ball drop in this one area? Especially when it’s your family who will end up suffering?

Small business owners spend so much of their time taking care of other people, we think it’s time that someone helped take care of them. Our office can help preserve the legacy you’ve worked so hard to build—for both your family and your business.

The post Self Employed? Failure to Plan = Disaster appeared first on Desert Law Group | Kimberly T. Lee.

Not about to let the panic on Wall Street slow them down, certain determined entrepreneurs have chosen to forgo investors and small business loans.  Instead, they have taken the plunge on their own by investing their retirement savings in their own small business venture.  “It’s a risky strategy,” writes author David S. Joachim, “one that has business owners essentially betting their retirement on their company.” But a willingness to take risks is exactly the quality that can make business owner a success.

Of course, a willingness to take risks should not translate into rash decision-making. A strong legal and investment background will be required to make this particular strategy, one that Joachim says is “so novel that many business analysts, tax experts, and even Internal Revenue Service officials said they had never heard of it” work for your company. In situations such as this, serious research and quality advisors can mean the difference between success and failure.

Our firm has worked hard to serve small business owners in the past, and we intend to continue helping our entrepreneurial friends far into the future, through times both lean and robust. Call our office for help moving your business in the right direction.

The post Risky Business appeared first on Desert Law Group | Kimberly T. Lee.

Recent studies have shown that two-thirds of small business owners (many of whom left big corporations to spend more time with their families) work more than 40 hours a week; with one in five actually putting in 80 hours a week! If you’re a small business owner reading this you probably have some experience with this yourself. How often have you read e-mails during dinner, taken phone calls from clients on weekends, or taken the family with you on a business trip to double up the time as “vacation”?

Why do small business owners find it so difficult to find balance?  John Wyckoff believes it’s because too many of them spend all their time working “in” rather than “on” their business. CBS News posits that perhaps people have a hard time drawing the line between on-call and off-duty when both business and family happens in the same physical space.  And the Entrepreneurial Connection thinks that small business owners would be much better off if they knew more about (or were willing to take advantage of) time-saving opportunities and devices.

Whatever your reason, finding a balance between work and pleasure is essential for small business owners.  And as unlikely as it may seem, your attorney can help you find that balance. Whether by helping your business make that transition to the next level, by putting legal protections in place to keep your family finances safe from business lawsuits, by updating your business plan, or working with you on an eventual exit strategy.  However you choose to do it, the best way to take care of your business is to take care of yourself.  Start taking care of both today.

The post Without A Net appeared first on Desert Law Group | Kimberly T. Lee.

The increase will help workers deal with soaring energy and food costs, as described by Christopher Rugaber of the Associated Press, but many entrepreneurs are wondering if the increase will adversely affect their businesses. In fact, according to an article by Angus Loten in Inc.com (published last year when the increase was first approved by the House of Representatives), most small business owners will not be hit by the increase, because they already pay their employees more than the state or federal minimums.

There is a web of interconnectedness in small businesses that is more readily apparent than in large corporations, which means that small business owners often can’t help but see and react to the financial well-being of their employees. Loten, in his article, quotes Mark McCurry, the president of a small Atlanta-based delivery service as wondering “how you could pay anyone less than [the minimum wage] in good conscience?”

This seems to be the prevailing opinion of small business-owners across the country, who, according to Inc.com, generally pay employees more than minimum wage anyway, and 70% of whom reported that “raising the federal minimum wage would have little impact on their labor costs.”

Small business owners are struggling just as much as the next person with the current record inflation levels, but in an intimate work environment where the boss works side by side with employees, it’s difficult not to see how everyone is affected by the ups and downs of our recent economy. Perhaps it is for this very reason that these same small business owners are ahead of the minimum wage curve, providing for their employees and giving themselves some breathing room in the process.

The post Minimum Wage Increase and Your Small Business appeared first on Desert Law Group | Kimberly T. Lee.

“Happiness is having a large, loving, caring, close-knit family . . . in another city”

— George Burns

I just returned from a nice visit with my parents and brothers who live in beautiful San Francisco area. To those who start hyperventilating at the mere thought of a family reunion it’s almost inconceivable that there are some families who would choose—in addition to spending their leisure time together—to work together as well. But to a generation that has seen the trustworthy big businesses disappoint or betray their employees time and time again, the old adage “blood is thicker than water” doesn’t seem so outdated anymore.

In fact, family-owned businesses may be more pervasive than you think. Pervasive enough for Business Week Online to compile a Special Report focused exclusively on Family-Owned Businesses.

Family businesses are the oldest business in existence. Ever since pre-historic man first dragged a son with him to hunt for skins to trade to the neighbors, it has been an honored and respected tradition. Skills can be honed and passed from parent to child almost as naturally as breathing, and when your kids know they may end up caring for you in your old age they are less likely to skimp on the retirement benefits.

Family businesses are in a unique and enviable position because they straddle generations; and if they’re smart they have a hand in each one. The Business Week online article Room to Grow gives some great examples of how to draw the younger generation into the business—and break into new markets in the process.

Of course, a family-run business has its own unique challenges as well, first and foremost of which is succession planning. What is the best way to hand the business to the next generation? Is it something you should be thinking of yet? Business Week Online’s special report addresses this issue as well with their article A Transfer Tsunami for Family Biz.

In a world where large corporations are increasingly unreliable and unfriendly, family businesses are stepping into the spotlight. If done right, they can embody the best qualities of a close-knit family while letting advisors and receptivity help them avoid the worst. Alex Haley, the author of Roots, and a man who knew a little bit about family, said it best; “In every conceivable manner, the family is link to our past, bridge to our future.”

The post All In The Family . . . Business appeared first on Desert Law Group | Kimberly T. Lee.