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The Buy-Sell Agreement: A Powerful Estate Planning Tool for Business Owners

Business owners in Maryland can benefit from estate planning strategies, both on a personal and business level. This may include the use of a buy-sell agreement, which can be an important tool for an owner of an interest in a closely-held or small family business. The business may be organized as a partnership, an LLC or a small business corporation. The buy-sell agreement may provide for business succession procedures, for restrictions on the transfer of stock or business shares, and for the purchase of the share of a withdrawing owner or partner. Specifically, it may apply when a shareholder, member or partner retires, dies, becomes incapacitated, permanently disabled, or for other unexpected departures. This article focuses largely on the buy-sell agreement in the estate planning context to facilitate the individual’s goals for the direction of the business and for compensation of his or her beneficiaries after death.

The Important Benefits of the Buy-Sell Agreement:

The buy-sell agreement offers several important benefits, which may include:

  • Preventing withdrawing partners, members or shareholders from selling their share to an outsider without first offering it to the corporation or the remaining owners or partners;
  • Providing funding and establishing the terms and conditions for purchase or sale of a disabled, deceased, incapacitated, retiring or withdrawing owner’s share in the business;
  • Providing a formula that can be advantageous tax-wise to the parties in arriving at the fair value and price of the share being transferred;
  • Giving enforceable contractual assurances to each owner or stakeholder that nothing will precipitously impact one’s share in the business, except by strict adherence to the clearly established terms in the agreement.
The Buy-Sell Agreement and Estate Planning:

For estate planning purposes, the buy-sell agreement helps to minimize stress and uncertainty to the beneficiaries. This may occur where there is no plan and/or insufficient funding for passing the decedent’s business interest to the beneficiaries. For example, one of the co-founders of a family-owned company may desire that the business is kept within the family and not sold to outside parties when she dies. She also wants the other owners to purchase her share so that her beneficiaries can inherit the full value of her share.

The buy-sell agreement usually gives the surviving business owners a “right of first refusal” to purchase the decedent’s share. This keeps the business in the closely-held family circle and tends to assure that the values and traditions that made the business a success will endure.

Life Insurance Facilitates Purchase of the Decedent’s Share:

Free-flowing cash or liquid assets are not always available to purchase a valuable interest in a successful, longstanding business. Indeed, the agreement will provide that the decedent’s share is offered on the market if the corporation or the surviving shareholders or partners cannot complete the transaction. But pre-planning through the buy-sell agreement removes that uncertainty and establishes an automatic mechanism for funding the purchase of the decedent’s ownership interest.

That is accomplished through life insurance, which may be purchased as a group of policies that covers each of the owners or partners for the various contingencies, including death. The purchase price of the decedent’s share is calculated by the formula contained in the agreement, which was tailored to provide maximum tax savings to the parties. The insurance coverage is pre-calculated to pay the value of the decedent’s share and expenses related to the transfer. Periodic review of the formula and the insurance funding is necessary to avoid insufficient financing.

Using a Will or Living Trust To Distribute the Business Proceeds and Other Assets:

The business owner’s last will and testament is usually the centerpiece of the estate plan. It provides for the disposition of the owner’s share with reference to the buy-sell agreement. Alternatively, circumstances and personal preferences may occasionally call for using a living trust instrument as the central mechanism for asset distribution. In that event, the agreement will be coordinated with the trust for a seamless transfer of the proceeds to the beneficiaries. With the trust, probate may be avoided, and any minimal assets found in the probate estate may be disposed of by a “pour over” will that gifts the stray assets to the trust for final disposition.

The trust may also establish management of assets by the trustee if the owner becomes disabled or incapacitated. A separate power of attorney is also recommended to cover all bases in the event of incapacity. In addition, the avoiding of probate usually facilitates a quicker distribution of the business purchase proceeds and the other assets; administrative expenses may also be significantly reduced. Nonetheless, the estate planning decision to use a living trust or a will is a relatively complex issue in Maryland and elsewhere. It requires professional guidance and analysis. Estate planning, trust administration, and business interest transfers through a buy-sell agreement are not safely accomplished through internet templates. Trying to self-maneuver such an intricate legal and financial web may cause mistakes and extraordinary expenses. The process may be best accomplished with the combined input of the estate planning attorney, a qualified financial planner and a life insurance agent.

Information in this article is provided for educational purposes only and not intended to constitute legal advice. Please consult with a licensed attorney in your jurisdiction for help with your specific situation.

For guidance in crafting your buy-sell agreement or any other estate planning documents, contact Maryland attorney Elsa W. Smith at the Law Offices of Elsa W. Smith, LLC.  We have two offices to serve you – Annapolis (410) 556-0077 and Laurel (301) 358-4340.  You can also contact us through this website.

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Los Estilos de Vida Cambiantes de Milenarios: La Planificación Patrimonial Brinda Seguridad

Los milenarios son miembros de un grupo generacional que nació aproximadamente entre 1980 y 2000. Los medios en Maryland y en todo el país se esfuerzan por trazar los hábitos y tendencias de la generación del milenio. Se caracterizan como independientes, aventureros, generalmente progresistas, conocedores de la tecnología y emprendedores. Como tales, parecen tener poco interés en las tediosas actividades de planificación patrimonial y creación de riqueza, que creen que son para ricos y ancianos. También tienden a evitar temas de la muerte y la discapacidad, temas lúgubres que desafían su típica imagen de sí mismos de la inmortalidad.

De hecho, una encuesta publicada en USA Today encontró que el 78 por ciento de los estadounidenses menores de 36 años no tienen un testamento. Pero eso está cambiando. Ahora la porción más grande de la población adulta, los milenarios representan una voz poderosa para el consumismo y la conciencia social. Es importante destacar que los baby boomers se están preparando para transferir un aleccionador $ 30 billones a la Generación X y la generación del milenio en los próximos años. A medida que los millennials se acostumbran a tener una vida segura, adoptan cada vez más los valores del matrimonio y la familia.

Además, están aceptando la muerte como algo dado, mientras ven la discapacidad y las enfermedades graves como un giro del destino neutral en cuanto a la edad. Con su educación de alta tecnología, los milenarios están acostumbrados a trabajar con plataformas digitales organizadas. La planificación patrimonial, después de todo, es simplemente un programa estructurado para proteger y hacer crecer los activos, involucrarse en la construcción de riqueza y utilizar mecanismos efectivos para la transferencia de riqueza. Los milenarios consideran que el proceso de planificación es fácil de usar y sistemáticamente eficiente.

Existen muchas otras razones por las que los milenarios se sienten atraídos por la planificación de patrimonio. Cuando se involucran en la planificación, pueden:

  • Organícese sobre la gestión y el crecimiento de los activos;
  • Hacer poderes y directivas avanzadas para evitar gastos en caso de incapacidad;
  • Controlar los regalos de los activos a las personas deseadas;
  • Designar a un ejecutor que administrará el patrimonio;
  • Maximice los beneficios de las cuentas de jubilación y otras inversiones, mientras asegura las selecciones de beneficiarios actualizadas;
  • Proporcionar un seguro de vida para mantener a una familia y / o financiar la retención de una empresa familiar u otra empresa;
  • Controlar exactamente cómo el ejecutor dispone de bienes raíces familiares, evitando la discordia familiar en el proceso;
  • Obtener la tranquilidad de saber que las mascotas serán atendidas con cariño durante la discapacidad o después de la muerte. Esto generalmente implica un fideicomiso de cuidado de mascotas y el nombramiento de un cuidador, lo que evita que las mascotas vayan a refugios públicos;
  • Designar cómo se manejarán las cuentas digitales y en línea del testador, quién las controla y su disposición después de la muerte, evitando así las costosas disputas con los proveedores en línea;
  • Guardar y conservar las fotografías almacenadas digitalmente que existen en los teléfonos y las computadoras de una persona al momento de la muerte;
  • Designar un tutor para niño  
  • Establecer un fideicomiso en vida para evitar el proceso de sucesión público y, por lo tanto, también reducir las largas demoras y los honorarios y gastos innecesarios;
  • Evitar la discordia entre los hijastros y los herederos de sangre;
  • Aprovechar los beneficios fiscales, reduzca los impuestos y pague las facturas necesarias;
  • Controlar la disposición de propiedad personal, arte valioso, vehículos, reliquias familiares y otros artículos valiosos;
  • Desarrollar una relación continua con una abogada con experiencia en planificación patrimonial que conozca sus necesidades y cómo cumplir con sus objetivos establecidos.

De este modo, el proceso permite el control sobre los activos y el legado que se transfiere a la próxima generación. Se dice que la riqueza no es realmente riqueza si no puede transferirse a las generaciones futuras. La planificación ineficaz o la falta de planificación pueden derrotar ese resultado. La planificación patrimonial en Maryland y en otros lugares no solo se trata de dinero. Cuando se hace correctamente, también crea un legado, refleja los valores de una persona y evita la discordia familiar. Construir riqueza incluye protegerla, hacerla crecer y posicionarla legalmente para que sea transferida de manera eficiente a un cónyuge, hijos, nietos o una causa benéfica. La planificación patrimonial ofrece un arsenal de herramientas, que incluyen testamentos, fideicomisos de vida testamentarios y / o revocables, directivas anticipadas y poderes, a través de los cuales el proceso logra sus objetivos y le brinda tranquilidad.

La información de este artículo se ofrece solo con fines educativos y no constituye asesoramiento jurídico. Para obtener ayuda específica, consulte con un abogado autorizado en su jurisdicción.


Si usted es un milenio y necesita orientación con respecto a sus necesidades de planificación patrimonial, comuníquese con la abogada con experiencia en planificación patrimonial de Maryland Elsa W. Smith en las Oficinas Legales de Elsa W. Smith, LLC. Hay dos oficinas para servirle: Annapolis (410) 556-0077 y Laurel (301) 358-4340. También puede contactarnos a través de este sitio web.

 

* Publicidad de la abogada *

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Millennials’ Changing Lifestyles: Estate Planning Provides Security

 

Millennials are members of a generational group who were born roughly between 1980 and 2000. The media in Maryland and nationwide thrives on charting the habits and trends of millennials. They are portrayed as independent, adventuresome, generally progressive, tech-savvy and entrepreneurial. As such, they appear to have little interest in the tedious activities of estate planning and wealth-building, which they believe are for the rich and elderly. They also tend to shun death and disability, dreary topics that challenge their typical self-image of immortality.

Indeed, a survey published in USA Today found that 78 percent of Americans under the age of 36 do not have a will or trust. But that is changing. Now the largest portion of the adult population, millennials represent a powerful voice for consumerism and social consciousness. Importantly, the baby boomers are preparing to transfer a sobering $30 trillion to Gen Xers and millennials in the coming years. As millennials acclimate to having a secure life, they increasingly embrace the values of marriage and family.

Moreover, they are accepting death as a given, while viewing disability and serious illness as age-neutral twists of fate. With their high-tech upbringing, millennials are accustomed to working with organized digital platforms. Estate planning, after all, is simply a structured program to protect and grow assets, engage in wealth-building and utilize effective mechanisms for wealth transfer. Millennials find the planning process to be user-friendly and systematically efficient.

There are numerous other reasons why millennials are becoming attracted to estate planning. When they engage in planning, they can:

  • Get organized about managing and growing assets;
  • Make powers of attorney and health care directives to avoid expenses in the event of incapacity;
  • Control the gifting of assets by percentages and to the desired persons;
  • Appoint an executor who will manage the estate;
  • Maximize the benefits of retirement accounts and other investments, while assuring updated beneficiary selections;
  • Provide life insurance to support a family and/or to finance the retention of a family business or other enterprise;
  • Control exactly how the executor disposes of family real estate, avoiding family discord in the process;
  • Get the peace of mind of knowing that pets will be cared for lovingly during disability or after death. This usually involves a pet care trust and appointment of a caretaker, thus saving pets from going to public shelters;
  • Designate how the testator’s digital and online accounts are to be handled, who controls them, and their disposition after death, thus avoiding costly disputes with online providers;
  • Save and preserve digitally stored photographs that exist on a person’s phones and computers at death;
  • Appoint a guardian for minor children should there be an unexpected tragedy;
  • Set up a living trust to avoid the public probate process, and thereby also cut out long delays and unnecessary fees and expenses;
  • Avoid discord between stepchildren and blood heirs;
  • Take advantage of tax benefits, reduce taxes, and pay necessary bills;
  • Control the disposition of personal property, valuable art, vehicles, heirlooms, and other valuable items;
  • Develop an ongoing relationship with an experienced estate planning attorney who knows your needs and how to fulfill your stated goals.

The process thus allows for one’s control over the assets and legacy that transfers to the next generation. It is said that wealth is not really wealth if it is not capable of being transferred to future generations. Inefficient planning or failure to plan can defeat that outcome. Estate planning in Maryland and elsewhere is not just about money. When done correctly, it also creates a legacy, reflects a person’s values, and avoids family discord. Building wealth includes protecting it, growing it and legally positioning it to be transferred efficiently to a spouse, children, grandchildren or charitable cause. Estate planning offers an arsenal of tools, including wills, testamentary and/or revocable living trusts, advance directives, and powers of attorney, through which the process achieves your goals and gives you peace of mind.

Information in this article is provided for educational purposes only and not intended to constitute legal advice. Please consult with a licensed attorney in your jurisdiction for help with your specific situation

Having an experienced estate planning attorney can ensure that your wishes are outlined appropriately under Maryland law. The Law Offices of Elsa W. Smith, LLC can assist by drafting estate planning documents that secure your assets, honor your wishes, and safeguard against the public Maryland probate process. Contact us today in our Annapolis Office at 410-995-7719, in Laurel at 301-358-4340 or visit our website at elsawsmithlaw.com to learn how we can protect you, your family and your business.

 

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