Many of our clients' net worth and cash flow is or will be derived from a closely held or family business. Whether a business is at the formation, growth or exit stage, our collaborative planning services can help business owners tackle transitions gracefully.
The formation of a closely held business requires careful selection of the type of entity to be used. Deciding which form of entity will work best can be challenging, since it requires a solid understanding of the liability protection offered by each type and the tax consequences for the entity and its owners. The limited liability company has become the preferred vehicle for many operating and high liability businesses. This type of entity provides increased liability protection while offering flow-through taxation. The limited liability company requires few business formalities while providing increased flexibility in day-to-day management and transferability upon an owner's retirement or death. Where appropriate, formation of the entity in an asset protection state can provide added strength and safeguards. Other types of entities that are often used include partnerships (limited or general) and corporations (C or Subchapter S).
For ongoing businesses, the transition of key players, whether due to incapacity, death, or retirement, can be a devastating event for the business and those who depend on it. Who will run the business? Who will own it? How will cash flow be replaced?
Most business owners are entirely devoted to running the business and fail to plan for the future. As a result, many closely held businesses cannot be sustained after the retirement or death of the founder or key employee. Most issues raised by these transitions can be addressed through proper planning. Buy-sell agreements can be implemented to determine the timing, price and source of funding to purchase a disabled, retiring or deceased owner's interest. If the business is to be sold, planning for its sale in advance can optimize its value. If the business is to be passed down, estate, gift, generation skipping transfer tax minimization strategies can be put in place to avoid a fire sale of the business to pay taxes. Often times, some, but not all, of a business owner's children or relatives are involved or want to stay involved with the business, and treating children or relatives fairly can be a sensitive matter.
Through our collaborative planning process, we work with clients, their other advisors and our contacts in asset protection states to implement holistic plans designed to form, grow, replace cash flow and provide for the succession of ownership and control of a closely held business. These plans greatly increase the likelihood that the business will continue to thrive after one of life's transitions, all while lessening income and transfer taxes and maintaining harmony.
Most estates consist of some form of real estate, whether residential (i.e., the family home), commercial, or multi family. For many clients of retirement age, and given real property values in California, the family home is their most valuable asset. For real estate investors, often most of their wealth is tied up in properties and their liquid assets make up a small portion of their portfolio. Because real estate is an easy target for creditors (i.e., it's easy to find) and is difficult to manage when co-owned with others, real estate (other than the family residence) is usually held in an entity such as an LLC or a limited partnership.
Our process for working with real estate investors begins with a review of the existing title, operating agreements, loan documents, zoning and highest and best use. Through collaboration with real estate, income tax and insurance advisors, we help clients maximize the benefits of real estate ownership and prepare for transitioning control and ownership, whether through a sale, exchange or gift that lessens income, gift, estate and property taxes. We prepare or revise existing agreements to achieve the client's desired result –sometimes to restrict management and ownership rights, which can have a secondary effect of reducing values, but other times to reduce such restrictions, which can have the opposite secondary effect of increasing values, reducing capital gain taxes and maximizing depreciation deductions, all as best suited for the particular situation.
Please refer to our Advanced Estate Planning Page for more information.
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The Law Offices of Jacqueline Real-Salas is a full service Estate Planning & Tax Planning law firm. They provide comprehensive planning in the areas of wills, trusts, powers of attorney, medical directives, advanced estate planning, income tax planning, probate & trust administration, probate avoidance planning, special needs trusts, disability planning and asset protection. Jacqueline Real-Salas serves clients and their families all throughout the Los Angeles Area, including Temecula, Pasadena, Murrieta, French Valley, North San Diego County, and the surrounding areas, cities and towns.
Copyright © IMS. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement. Some artwork provided under license agreement.