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Sunday, 18 March 2018 16:51

Estate Planning as a Business Owner

A business owner’s estate plan, no matter how complex, can be implemented any time before death, so long as the testator is still legally competent ("sound minded", including that they understand the nature of making a will, the extent of his/her property, and know who would be considered the natural object of his/her bounty, etc.). Regardless, it's still a good idea to begin planning in advance, since time of need planning may not be possible.

If you are an owner of a business or a professional practice, it is even more important that your estate planning begin soon. Since it's quite likely that a significant portion of your wealth, and your family's source of income after your death, is tied up in the business. In that situation, the success of your estate plan is likely dependent on the business being transitioned to the next generation or sold to a 3rd party for a reasonable price. Both of those results may take years of planning and preparation to be successful. 

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Generally speaking when purchasing a business, the buyer is only going to want to acquire the assets of that business and not buy the actual business entity. Why not? Well, the entity could have unwanted characteristics or hidden liabilities.  For example, if the previous owner made a mistake on a tax return, that mistake could lead to thousands in unexpected tax liability, penalties and/or interest, which the new owner would not want to incur.

There are circumstances where an asset sale is not the prefered purchase method. Typically, those are situations where the business entity holds a license that is non-transferrable, such as a liquor license, or the entity has a non-transferable contract, such as a government that took a long time to bid and be awarded, but for most transactions, an asset sale is going to be the preferable form of purchase.
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