Blog Post

Estate Planning for the Business Owner Series, Part 4: Document the Transfer

Future Wealth Navigator

Once a business owner has an understanding of the value of the business and the tax and cash flow impacts of the transfer, the next step is to document the transfer. This may be done by the client’s separate business legal counsel or, if there isn’t one, the estate planner can usually handle the appropriate documentation. It is important to remember that if the client’s goal is to sell to a third party, all of these documents will be reviewed and scrutinized during due diligence, so it is best practice to have them all complete and organized so there is no question about the ownership of the business and the effectiveness of any transfer.

First, all of the existing documents will need to be reviewed. For example, there may be transfer restrictions in old bylaws that will need to be amended, or there may be an existing operating agreement or shareholder agreement requiring that certain consents be obtained from the manager or board in order to transfer equity. If there are lenders or other third-party agreements in place, those should also be reviewed to ensure there are no other separate consents that need to be obtained. Those agreements may also give guidance as to how the transfer must be structured. For example, a gift to a trust for the benefit of a spouse or family members of a current equity owner may be allowed, but only if the Trustee is an individual that is qualified under the bylaws or operating agreement. The existing agreements may provide guidance as to the ultimate structure of the transfer depending on the relationship between the parties.

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