Many small business owners mistakenly believe business succession planning and estate planning is for those with substantial wealth. This is simply a myth which does not reflect the nature of business or home ownership.

Business succession planning, tax and estate planning protects all of the time, hard work, investment and creativity you've invested in your life and business. It reduces the exposure of your business, personal and financial assets to liens and attachment by creditors. There should be a systematic plan to preserve and protect all assets in the event of specific “triggers,” unexpected life events such as serious injury, major illness, incapacitation or loss of life.

Tax and estate planning for small business owners and S Corporations with no employees covers a lot of ground, but should be focused on 5 essential tasks:

• Provide as much protection as possible for all assets to minimize risk and access by creditors
• Ensuring the continuation of business interests and the ability to make important decisions in the event of an unexpected illness, incapacitation or death
• Protect the viability and valuation of the business if and when something happens, and establishing the process for the transfer of ownership interests upon a triggering event
• Ensuring that your wishes are clearly established, and assets are transferred in the shortest possible time frame, while reducing or eliminating taxable events and other costs to the estate
• Saving you, your spouse and/or your beneficiaries a substantial amount of time, money and risk

One of the first matters to be addressed in tax and estate planning for small business owners and S Corporations without employees should include the development of plan to ensure the smooth continuation of your business regardless of what happens to you. Do you have heirs or beneficiaries who are prepared to step in and actively manage the business? Will your business need interim management to preserve the viability and value of the company until beneficiaries come of age or the business interest can be successfully sold?

A recent SCOTUS decision in Connelly vs U.S. requires a complete review of all associated strategies and documents including buy/sell agreements, redemption agreements and associated insurance. You are the center of your business entity, and a strong business succession plan ensures your company can continue in your absence while defining how and when the asset should be sold or transferred.

How will the potential sunset of the TCJA at the end of 2025 affect your tax position?

What happens if you own your home? If you were to pass away without an estate plan your interest in the home may be tied up in probate for more than a year. Probate costs are based upon the market value or appraised value of your assets, not the equity. For example, if your house is appraised at $1,000,000 (the present median value of all single family homes in San Diego) the cost of probate for this asset alone would exceed $45,000 and take more than one year. It is important to note probate fees are based upon the value of the asset regardless of the underlying financing and remaining equity.

The IRS usually looks at the company of a small business owner, single shareholder or sole proprietor as an asset of the owner. This means all of your assets, including your business (even those titled in the name of your company) could be lumped together and taxed as personal assets.

What are the best strategies to ensure your wishes are clearly established and followed in the event of a triggering event? What happens to the fruits of all of the years of hard work, time, investment and creativity you’ve invested in your business and personal pursuits? How do you minimize the impact of taxation from this moment forward?