Plan Your Estate
Nobody wants to think about his or her death, but it eventually sneaks up on everyone. You need to make sure that the business you built will continue to support and not burden your family when you're no longer around.
Make sure not to have a controlling stake in the company when you die to ensure that the business stays outside the estate. Otherwise, your loved ones may be stuck with an overwhelming estate tax. To unburden your shares, set up irrevocable trusts or make gifts to family members.
Another post-death problem with having your wealth tied up in your business is liquidity. Your business may be worth a lot on paper, but it will be difficult for your family to see actual cash.
One solution is a buy-sell agreement. There are two types, cross-purchase and stock redemption. In the first, each owner buys an insurance policy on the other so that when a partner dies, the other partner can buy his or her share of the business with the tax-free proceeds.
A stock-redemption agreement works similarly except that the corporation is the beneficiary of the insurance policy.
The government is also aware of this problem and created various exemptions including section 303, section 6166, and qualified family-owned business exclusions.
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