One of the most fulfilling points of life is building your business from the ground to a thriving enterprise. Most people automatically assume that this business will pass onto their children when they retire or pass on and will instead focus on other business elements.
A business transfer is however, not this simple. There are several methods family lawyers in Townsville will recommend for legally transferring your business to your children. Your succession planning should start immediately you set up a business.
This guarantees you pass as many benefits as you possibly can when the time for doing so will come. This is because your lawyer will look for various methods to minimize your tax burden and liability as much as possible when transferring the business.
The following are some of your legal alternatives for the transfer of the company to your children.
1. Use your last will
You can transfer your business interests to your kids in your will. Doing this is simple and will allow you to completely control the business as long as you are alive. This might, however, cripple your business when you are no longer capable of managing the business’ affairs.
This is because your kids might not learn as much into what it entails to run your company. This is particularly so if you do not teach them when you are alive. Moreover, the shares you transfer will be subjected to taxes when you transfer them in your will.
2. Gift it while alive
You are allowed to gift a tax-free amount of your estate while alive. You can start gifting parts of your business or even gift the whole of it to your children while alive.
The most significant advantage of this alternative is that the future appreciation of the business shares will not be subject to estate transfer taxes upon your death. Your children’s tax base in your company will, however, be equal to yours in this option.
3. Sell it to your children
This is your ideal choice if you want to continue receiving an income from your company while your kids own it. Your kids might not have the cash to buy your company for its current market value. You can, however, sell the business interests for a promissory or self-canceling installment note.
With the promissory note, your child pays off a principal and interest on their shares using the business returns. In a self-canceling installment note, the outstanding balance of the business’ purchase is canceled upon your death.
4. Transfer the company in a trust
Transferring your company in a trust protects the children’s interests from creditors and marital division in case of divorce. You can make your child a co-trustee so that they make decisions affecting the business. You should, however, have a second trustee who controls the income distributions to the child and protects them from creditor claims.
Transferring your business to family members might not be the same as transferring to your children. Rather than make any assumptions, get an attorney to guide your choices. This way, you will be guaranteed that the above alternatives will work for your kids while cushioning your company from failure.