Do You Own Business Holdings? How to Make it Easier for your Survivors

business owner looking at laptop

If you or our spouse own a business, it is important to fully address ownership and taxation issues in your estate plan. This is a complex area but we'll address some of the more common concerns.

What Should an Estate Plan for Business Owners Include?

An individual's estate plan should include wills, will substitutes, trusts, power of attorney, medical directives, and tax considerations.

Business owners will also want to discuss these items with their estate planning attorney:

  • Trusts - A trust can help business owners to minimize tax consequences and pass on assets outside of probate. It can also address management issues such as the process for appointing a successor and requiring shareholders' consent in order to take certain actions. Also, consider whether it should be revocable (can be changed, altered or even terminated completely during your lifetime) or irrevocable (permanent); if you were to transfer business assets to an irrevocable trust, you could not take them back out.
  • Financial Power of Attorney - This can help to ensure continued business operations if you are unable to run it yourself.
  • Insurance - A life insurance policy can help to ensure your family has liquidity (a source of income) if they lose access to the company's funds when you pass away. "Key person insurance" is designed to protect a business from losses in the event of death. Consider buying both short-term and long-term disability insurance if you're concerned about getting hurt or developing a debilitating illness.

Who Gets It?

As with other assets in your estate plan, deciding what will happen to your business is crucial for your heirs. Some considerations:

  • Buy-sell agreement - A buy-sell agreement is a contract that specifies how the ownership portions of a business may be reassigned upon death or retirement. It also should determine the valuation method. Depending on the documentation and specific circumstances, your heirs may decide to buy out the co-owners or sell it to them.
  • Fully-owned business - If you own 100% of your business, it makes ownership transfer easier:
    • Selling the business:Depending on the situation, either the trustee or a person who inherits the business will have the right to sell it.
    • Retaining the business within the family: There are a number of items that should be clarified in advance, in order to ease the transition and avoid family squabbles. These include:
      • Fairness in distribution -While the perception might be that "fair" clearly means an equal split of all assets to beneficiaries, this isn't necessarily the case. In some circumstances, fair/equitable distribution (unequal distribution) better suits the trustor's goals. For example, a business might have substantial assets (i.e., valuable if sold) but poor cash flow (in which case, the heir may be forced to sell the business in order to have a similar a cash distribution as compared to other heirs).
      • Multiple owners -Some business owners want to split ownership, such as half to the spouse and half to the children. In this case, it is important to consider who will be in charge of your business; some or all of your family members may not be appropriate selections but perhaps there is a key employee or business colleague that could help run the business.
      • Support for surviving spouse - If your spouse will rely upon income from the business, it is important to set up a long-term structure to support those needs (whether that means keeping the business as a going concern or selling it and managing the proceeds).

What is Succession Planning?

In order to ensure a smooth transition of ownership and management in case of incapacity or death, a "succession plan" should be considered in conjunction with your estate plan. This will help in preventing disruptions to company operations, minimizing potential estate taxes, and providing financial security for heirs or chosen successors.

Succession planning involves how your business will be continued after your death. This might include management structure, tax planning, operational plans, financing (especially if you have a personal guarantee for bank loans/lines of credit), etc. It typically, but not always, addresses ownership. Without this planning, your heirs can become absorbed with figuring out bank loans, outstanding accounts receivable, different business divisions or entities, real estate holdings, or various partnership arrangements. Succession plans are typically developed with your CPA firm in conjunction with your estate planning attorney.

On the other hand, estate planning determines who gets ownership of your property when you die. If you own a corporation, stock in that corporation can be distributed to heirs, while if you own a sole proprietorship, your business assets are personal property and will be distributed according to your estate plan.

Specialized Estate Planning Expertise for Business Owners

As a business owner, taking the time and effort to create an estate plan is one of the most thoughtful steps you can take for your family and loved ones. For many families, the less decisions that are left for your heirs, the better it is for all concerned.

If you need legal expertise in addressing your specific estate planning needs, please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form. Our website is

About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at