Most business owners spend years building their companies, but never plan what happens to those businesses after they’re gone. Without proper estate planning, your business could end up in probate, face unnecessary tax burdens, or create disputes among family members who suddenly own it together. Estate planning for business owners isn’t the same as planning for individuals with traditional assets. Your business is probably your largest asset, and it needs specialized attention.
Why Business Succession Planning Matters
When you die or become incapacitated, someone needs to run your business. If you haven’t designated that person and given them legal authority to act, your company could be paralyzed. Bills don’t get paid. Contracts don’t get signed. Employees don’t know who’s in charge.
Succession planning identifies who takes over management and how ownership transfers. Maybe you want your children to inherit the business. Maybe you’d prefer your business partner to buy out your share. Maybe you want key employees to have the opportunity to purchase it. Without a plan, Illinois law decides for you. And the results rarely match what you would’ve wanted.
Structuring Business Ownership In Your Estate Plan
How your business is structured affects how it transfers at death. Sole proprietorships work one way. Partnerships another. LLCs and corporations each have their own rules and tax implications.
For closely held companies, we typically recommend holding business interests in a trust rather than passing them through a will. A trust avoids probate, maintains privacy, and gives you more control over how and when ownership transfers. You can set conditions like requiring your children to work in the business for a certain period before gaining full ownership. Or creating buyout arrangements funded by life insurance.
Partnership agreements and operating agreements should include provisions that address what happens when an owner dies. Buy-sell agreements are particularly important here. They establish the terms under which surviving owners or the business itself can purchase a deceased owner’s interest, preventing ownership from passing to someone who has no business running the company. At Kravets Law Group, we help business owners structure these arrangements to protect both the company and the family.
Tax Planning For Business Assets
The assets from your business pose significant estate tax liabilities after your passing. Although the federal exemptions for estate taxes are great, depending on the overall value of your assets, your heir may be forced to sell them to just pay the bill.
Several strategies can reduce this burden:
- Gifting business interests during your lifetime to take advantage of annual gift tax exclusions
- Creating grantor retained annuity trusts (GRATs) that transfer appreciation outside your taxable estate
- Using life insurance trusts to provide liquidity for estate taxes
- Valuation discounts for minority interests or lack of marketability
Each strategy has specific requirements and timing considerations. What works for one business owner might not work for another.
Protecting Your Family While Protecting The Business
You might equalize inheritances by leaving the business to one child and other assets to siblings. You might use life insurance to provide cash to non-business heirs. Or you might create trusts that give your spouse income for life, with the business passing to your children after.
The key is addressing these issues while you’re alive and can explain your reasoning. Rather than leaving family members to fight after you’re gone. A Chicago estate administration lawyer can help you structure these arrangements to minimize conflict and protect relationships.
Planning For Incapacity
What happens if you’re incapacitated by illness or injury? A durable power of attorney for property can authorize someone to manage your business affairs, but it needs to be carefully drafted. Business-specific decisions like signing contracts, accessing business accounts, and making operational decisions all need to be addressed.
Some business owners create management trusts that hold their ownership interests and provide detailed instructions for trustees about how to run or sell the business if they become unable to do so themselves.
Coordinating With Your Business Partners
If you own a business with partners, your individual estate plans need to coordinate with your partnership or operating agreements. Buy-sell agreements should specify valuation methods, payment terms, and triggering events. Life insurance can fund these buyouts so surviving partners aren’t scrambling to raise cash.
You can’t create a plan at 45 and expect it to still work at 65 when your business has tripled in value and your kids are now adults with their own careers. As your business grows and your personal circumstances change, your estate plan needs to keep pace.
Estate planning for business owners involves multiple moving parts. Entity structure, tax planning, succession timing, and family considerations all need to work together. A Chicago estate administration lawyer can review your business structure, coordinate with your accountant and financial advisor, and draft the documents that keep your company running smoothly through any transition. Whether you’re just starting to think about succession or you need to update an existing plan, getting professional guidance gives you confidence that your life’s work will continue according to your wishes.