The majority of businesses in the United States are family-owned. Family-owned businesses account for 64% of the U.S. gross domestic product. They also generate 62% of the country’s employment and create 78% of all new job creation. Indeed, family businesses are the backbone of the U.S. economy, and the most significant portion of American’s wealth lies with family-owned businesses. Unfortunately, many families who own businesses do not have an estate plan in place, putting their business assets and employees at risk. Understanding the importance of estate planning for family-owned businesses and farms is essential.
Risks for Farms and Business OwnersFamily businesses, ranchers, and farmers face unique challenges in this economy. Creating an estate plan will help you ensure that your family business or farm will survive into the next generation. If the owner of a family farm or family business is sued, the business owner may need to sell the business or farmland to pay the plaintiff. When a plaintiff knows that a defendant owns a business, they may be more inclined to bring a lawsuit.
Additionally, owning a family business or farm may disqualify you from Medicaid. Nursing home costs are incredibly high, with some North Carolina nursing homes costing over $8,000 per month. Medicaid pays for long-term care services when necessary but qualifying for Medicaid is difficult. Medicaid is a means-based benefit. If your income level or assets are too high, you will not be eligible. Typically, the income generated by your family business or the value of your family farm will disqualify you from receiving Medicaid coverage. An estate planning attorney can help you organize your estate so that you can qualify for Medicaid coverage.
Moreover, if you pass away without an estate plan, the value of your land and company assets could increase the value of your estate above the value the IRS allows you to pass on tax-free. In other words, your children will have to pay the IRS a large sum of money when they inherit your farm or family business. Certain estate planning tools allow you to transfer ownership of the family business to your children while avoiding massive tax liability.
Running a business is extremely difficult, and many family business owners do not have enough liquid assets to pay estate taxes and other bills after they pass away. In many cases, their wealth is tied up in their company assets and land. Either the family members who inherit the business need to take out loans, or they will need to put up the business for sale to pay their liabilities. Estate planning lawyers can help you take steps to protect your loved ones and your business after you are gone.
Goals for Family Business Estate PlanningThere are two main goals of estate planning for businesses and farms. First, you should try to protect and preserve your business so you can pass it on intact to your children or grandchildren. You should be able to distribute the assets equitably among your heirs. Second, your estate plan should also focus on what will happen to your business immediately after you pass away. Who will run the business in the interim? How will your business stay afloat without you engaged in day-to-day activities? These are all critical issues that you can discuss with your estate planning attorney.
Keeping Your Farm or Family Business SafeMany different legal tools can protect family businesses and farms in North Carolina. You need an attorney who understands North Carolina laws and Medicaid eligibility rules, inheritance laws, and laws related to trusts and estates. In most cases, family businesses benefit from transferring ownership of their business assets into a trust. Additionally, forming a corporation or a Family Partnership can help you avoid tax liability when you pass away.
These estate planning tools can help you protect your company and ensure you keep your other personal assets safe, as well. For example, if you incorporate your family business, you can protect your personal assets. People or businesses who sue your company will not be able to come after your personal assets if they win a lawsuit against you.
Contact an Estate Planning Lawyer TodayAt Arnold & Smith, PLLC, we understand the risks farmers and entrepreneurs face. We have an in-depth understanding of North Carolina and federal laws. We use this experience to help our clients protect their businesses during their lifetimes and after their death. Contact us today to schedule your initial consultation at our Charlotte, Mooresville, or Monroe offices.