When we talk about estate planning, we usually talk about wills and trusts for people, couples, and families. However, Oregon businesses also need to have a solid estate plan in place. A business estate plan can protect not only the owner’s business interests, but family and business partners too.
Business ownership makes your estate more valuable than you might think
If you think your estate is too small to worry about, that’s not necessarily the case. Probate of the estate includes all assets, including both personal assets and business assets. The estate’s value includes the value of a decedent’s ownership of the business. That can quickly increase the total value of the estate over the $1,000,000 exception for the Oregon estate tax.
The problem with dying without a business estate plan in Oregon
For Oregon business owners, dying without a business estate plan can cause legal, financial, and personal hardships for everyone from your family, to your employees and business partners.
Without a written plan, family members may wind up owning the business by default—and they may have no idea what to do with it. Or, if your wishes were to have the business closed upon your death, those wishes need to be spelled out in the right legal documents, so those after you know exactly what you want to have happen. Your business partners could also wind up in a succession vacuum, leading to uncertainty, confusion, or damage to the business.
Not having an estate plan can also cause financial harm to your family, due to additional legal costs or taxes that could have been avoided.
What do you want your loved ones or business partners to do with the business or your share of the business?
Your Oregon business estate plan is your opportunity to spell out what your want your loved ones or business partners to do with the business after you’ve passed on. Here are some considerations:
- If closing up the business, how will operations, customer service, and financials be managed while the business winds down?
- How is ownership being passed on?
- What liability or other insurance should be retained, and for how long?
- How will business shares, distributions, etc., be disbursed to family members, business partners, etc.?
- Is ownership automatically passing to a spouse or child, or do other arrangements need to be made?
Taking care of business means communicating expectations. When your family and business partners know what you want to have happen with your business, or your stake in a business, then it will be that much easier for everyone to carry out your wishes in the midst of grief or other difficulties.
Assets you may need in your Oregon business estate plan
Every business has different estate planning needs. However, when you start discussing your Oregon business estate plan with your estate planning attorney, here are some of the legal assets you may be developing to ensure a smooth carrying-out of your wishes:
- Personal estate planning: Establish and update your personal will, trust, powers of attorney, and other Oregon estate planning documents.
- Succession plan: If the business is continuing, who will take over? How will successors be trained and kept current on what they’ll need to know to manage your role in the business?
- Closure procedures: If the business is to be closed, how will that be carried out?
- Tax planning: How can the business plan now for tax efficiencies after your death, to minimize tax impact on the business and your beneficiaries and successors?
- Buy-sell agreement: Specify the terms of how other partners/owners of the business can assume ownership of your share of the company in the event of death or incapacitation.
- Life and disability insurance: Purchase the correct insurance instruments for your needs and the needs of your beneficiaries
Will your business go through probate in Oregon?
Yes. Just as your personal estate will go through probate, your business will too (except for assets, such as insurance policies or retirement accounts, that name specific beneficiaries).
When you have planned for how your business will pass down after your death, however, probate can be a much simpler and less costly process. Business owners sometimes use specific legal and financial instruments to minimize tax liability for beneficiaries and successors, such as:
- Irrevocable Life Insurance Trust (ILIT): Can provide cash assets that do not have to pass through probate, and can be used to pay estate taxes or other costs.
- Grantor Retained Annuity Trust (GRAT) or Grantor Retained Unitrust (GRUT): Transfers business assets to your children during your lifetime, while providing you a source of income, and trust assets that have appreciated may not be subject to estate taxes.
- Family Limited Partnership or Family Limited Liability Company: Hold business assets in a family based limited partnership, ownership of which can be transferred to family members and generally removing the assets from your taxable estate.
Tax considerations for your Oregon business
For starters, any federal estate taxes must be paid out of the estate before any inheritance goes to your beneficiaries. However, only estates valued over $11.18 million are subject to that 40% federal estate tax. As long as your estate—and business—falls under that threshold, no federal estate tax will be applied.
Oregon does not charge beneficiaries an inheritance tax, but your business may be subject to an estate tax, which would be paid by the estate. In order for your business to be subject to an Oregon estate tax, the business must be valued above an Oregon exclusion threshold of $1,000,000, and any applicable tax will be calculated on a 10–16% sliding scale.
Planning your Oregon business estate is planning for you and those after you to have peace of mind
Just as you have worked hard to take care of yourself, your partners, and your family, establishing a business estate plan is how you can continue to take care of them after you’ve passed on. And the right attorney will be there for you every step of the way to guide you through the process, and make sure you have the right documents for all aspects of your business estate.