When Should You Include an Estate Planning Attorney in the Sale of Your Business?

Posted by Cheri Dorsey in Beneficiaries, Estate Planning, Retirement Planning, Succession Planning, Tax Planning
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We are often approached by clients who are in the process of selling their business. While we love to offer legal advice and recommendations regarding the sale, it is imperative that we are contacted before or during the negotiation stages. Once the letter of intent (“LOI”) is drafted, any guidance an estate planning attorney could offer is virtually irrelevant.

Without the counsel of an experienced estate planning attorney in advance of contract negotiation, business owners may not fully understand how the sale will impact the contents and ultimate disposition of their estate.

What Business Owners Should Consider Before Making the Sale

Business owners may want to sell their enterprise for several reasons, such as receiving a dream offer, changing their career path, or contemplating retirement.

Whatever the reason for the sale, business owners should consider the following before beginning any formalized negotiation:

Do I have any family members or other heirs who would like to take ownership of the business instead?
Do my beneficiaries possess the proper training, expertise, and desire to successfully run the business in my absence?
Will the sale provide my family with enough financial security when compared to the income the business generates?
Has the value of my business reached its peak or is there still growth potential?

A business owner may not be able to fully answer these questions on their own, and even when the answers are clear, they may not understand the best path forward. No matter how prepared a business owner feels when thinking about selling, or how confident they are about generating a profit from a sale, consulting with an estate planning attorney and a financial advisor can provide valuable insight into the process and draw attention to small, often overlooked, details.

What an Estate Planning Attorney Can Offer

The sale of a business often requires a tremendous amount of planning and paperwork. Before you enter any negotiations, an estate planning attorney can walk you through the income tax implications of the sale, as well as ensure that all your documentation is in order and up to date. These documents may include your businesses’:

Operating Agreement
Non-Disclosure Confidentiality Agreement
Offer-to-Purchase Agreement
Buy-Sell Agreement
Statement of Earnings and Cash Flow
Among many others

If the sale of your business will result in an influx of capital, preparations are required to ensure that you will be getting the most out of the transfer of liquid wealth to your estate. Experienced estate planning attorneys can also help business owners create new or revise existing trusts or holding companies in advance of a sale to protect the new assets or interests from estate taxes and creditor claims.

Commonly, selling a business results in significant income tax consequences for the seller. With the help of an estate planning attorney, business owners can utilize various strategies, including charitable giving opportunities, to reduce or defer the tax burden.

Make Sure Your Family is Getting the Most from the Sale

Whether your family expresses no interest in taking part in the business’ future, or a third party proposes a deal too attractive to pass up, estate planning attorneys and financial advisors can ensure that your beneficiaries profit from the sale of your business after the final documents have been signed. Depending on the nature of your business and the terms of any sale or merger, you may be able to gift company interests or options to your beneficiaries.

To the extent any gifted business interest is for a minority share or subject to certain restrictions, your estate planning attorney may be able to help minimize any gift taxes while transferring significant wealth to future generations. With these gifts, your family may receive a steady stream of income without holding the responsibility of running the day-to-day business or retaining voting powers, depending upon the structure of the sale or merger. Ideally, these gifts should be considered, planned, and executed before a sale is on the table so that the value of the gifts made has time to grow alongside the value of your business.

How and When to Approach Your Attorney

Once the LOI for your business is signed and out the door, an estate planning attorney may no longer be able to help you plan for the income and/or estate tax consequences of your sale. Whether you have your eyes set on a sale, a merger, or an acquisition, your estate planning attorney should be involved at the earliest stage possible.

Communicate with your attorney about what you hope to gain from the transaction, your hesitations, any questions or uncertainties you have about the process, and what interests you wish to pass along to your family and loved ones. The right estate planning attorney can be by your side every step of the way.

If you are considering selling your business, please contact us at (443) 589-5600. At Sessa & Dorsey, we consider the bigger picture at hand and advise our clients on the best estate planning tools for their specific needs and desires.

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