I received this question from R.J.G., in Sarasota, Florida, who recently wrote and asked:

I have a small business and was wondering if Estate Planning would help to protect it upon my death. What are your thoughts?

Dear R.J.G.:

According to the S.B.A., small businesses account for more than ninety percent of all firms in the U.S., many of which are family-owned. A U.S. News & World Report article states that small businesses represent 17 percent of the 8.2 trillion dollars of wealth owned by Americans age fifty and over, an astounding 1.4 trillion dollars! Successful business owners invest a great deal of time, energy, and financial resources into their business. Unfortunately, many business owners, unable to find the time to plan their estate due to the day-to-day demands of their business, may overlook problems that can arise at death, and undo years of hard work. For many business owners like yourself, it is important to begin estate planning now.

By planning, you can arrange your estate so hard-earned assets go to the people you select. One primary concern may be what will happen to your business at death. Often, the business is the largest asset in your estate. The two most common options are to let family members continue to run the business, or sell the business to a co-owner, employees of the business, or to an outside interest.

Through proper estate planning, your estate can be arranged so the most competent family members keep control of it. Often, the business will be transferred to your son or daughter, but there is still a need to provide a fair inheritance to your spouse and other family members. Or, if the business is to be sold outside your family, a buy-sell agreement can be put in place to smooth the transfer and make sure your family receives a fair price.

Estate planning provides the opportunity to use tax-saving techniques and arrange the estate to reduce taxes, expenses and delays. Too few business owners consider the impact that estate taxes will have on their business. As your business grows, you take measures to reduce federal income taxes that can claim up to 39 cents of every dollar you earn. Yet, you don't realize that for every dollar you save today, up to 55 cents could be taken by the IRS tomorrow if you fail to plan properly. Without planning, your business might have to be liquidated at a loss or be forced to borrow funds to pay estate taxes. Almost 90% of family-owned businesses don't survive to the third generation; one of the main reasons, lack of sufficient capital.

Current federal estate taxes, which start at a 37% marginal rate and quickly rise to 55%, are generally due in cash, within nine months of death. State inheritance taxes and other administrative expenses can further reduce the estate, especially if you have no Living Trust. Unfortunately, your business may be asset rich, tied-up in receivables, plant, equipment, inventory, etc., but cash poor. Without the cash to pay estate taxes, your estate may be forced into selling your business. There are special rules that may allow your estate to spread estate tax payments over time rather than pay them in a lump sum. However, not every estate can qualify for this treatment and for those that do, these payments, including interest, can further strain a business that is struggling with the loss of its key employee. Analyzing and providing liquidity, to pay estate taxes and expenses, is a key element in your estate plan.

To keep the business you've built successful in future years, requires spending time on estate planning now. A thorough estate plan allows you to assure a comfortable life for yourself today and for your family tomorrow. It's a great way to care for your loved ones' financial needs.