Like all small business owners, doctors with their private practice mainly focus on their day-to-day needs. However, what happens when you pass away should be a real concern for you and your family members. Do you want your private clinic and practice to remain a part of your family? Do you want a doctor in your family to take over? If you have partners, do you want to sell your share of the business to your partners?
What happens when you do not have a business plan?
It is not uncommon for doctors to not have a business plan. Estate planning is not as common among doctors either. When you pass away without clear directives about your business assets and real business property, you can leave your family in utter confusion. It can lead to a divergence of opinions and interests. It is a potential hazard to your business and your business interest. It can be disastrous for your business as well as for your family.
Is a will enough?
A will is a critical part of any business plan, but that does NOT make it enough. It is merely a written document that includes the testator’s specific directions about how the successors will manage his or her assets. A will is more of a set of directives that successors are bound to execute according to law.
A will does allow the testator to minimize the estate costs and make a list of specific recipients for specific assets, but it is not enough to save the heirs from the brunt of capital gains taxes, the standard of “highest and best use” valuation of property and property taxes on the business. In some states, family members cannot have access to critical business information unless you, the sole proprietor of the company, provide them access.
A doctor in the US needs to think beyond a simple will and embrace estate planning for small family-owned businesses, tax planning, and business planning ventures. In fact, he needs specific business planning guidance from legal experts and financial planning experts to protect the interest of his business and secure the future of his own family. Expert financial planning professionals almost always insist on drafting sound business plans that have provisions of saving the physician’s family from the business.
You need a buy-sell agreement
You may have a practice that has other physicians involved as shareholders. When you are the owner of a significant fraction of the share, you need to define a buy-sell agreement. This agreement can establish a plan in accordance with each owner’s interest in the event of the death or incapacitation of one owner. It is entirely possible that a physician’s family has nothing to do with medicine as a profession and they do not want to manage the clinic. In that case, after the death of the owner, the family may become stuck with a business they do not have any interest in, and they cannot sell off.
Like in case of most small family-owned businesses, it is likely that your successor is unaware of the value of your business shares or your business entirely. A buy-sell agreement can define the sale price for your business and help your designated heir to estimate a fair market value for the property and shares. A buy-sell document is of paramount importance when you want to restrict the entry of certain individuals in your business. It will also help your family to sell your portion without much trepidation, at a fair price.
It is ideal to draft your buy-sell agreement when your business is still young and growing. To prevent your current business partners from working with a future partner, who is uninterested and to prevent your family from entering a gridlock, you need to talk to a financial planner today. An expert can guide you through life insurance that is often necessary to validate a buy-sell agreement, tax redemption plans for your family and estate plans to secure the prosperity of your next few generations.
Successor planning steps in
You need to start delegating and preparing a successor when you surely want to pass your business to this person. To begin this process, first ensure that the person in question wants this responsibility. Your business will not benefit from employing a person with no interest in your work and no necessary training either. Lay out all business related information including your debts, loans, current stock prices and desired successor to avoid all confusion.
Family Limited Partnership: achieving all goals with one step
The best way to go about this is to opt for a family limited partnership or an FLP. It is a robust planning tool that combines personal tax planning, transfer of wealth in the family, business operational planning and business succession planning. It is the all in one solution for all doctors in the US trying to draft a wholesome estate plan right now. FLP is a legal entity that utilizes limited partnership norms. The partnerships can continue conducting the mentioned business for profit. It is ideal for clinics and medical practices. Traditionally a considerable part of them is partnerships since they have more than one owner. The owners do not have to be equal, and they may even belong to different classes.
FLP can successfully rake up all the assets into a single family-owned business partnership. Ideally, the family members are the owners of the shares. It is a smart way to reduce estate tax. The shares in the FLP are transferrable between the generations of a family at tax rates much lower than partnership holdings. It is another variation of the gift tax exemption, and it can attract significant amounts of tax deduction from the IRS.
When any small and family-owned business has a lot of intangible assets and illiquid assets, it becomes more difficult to evaluate the FLP. Doctors always prefer the advice of an expert financial planning firm like Beam a Life to help them draft the FLP. A correct evaluation can help you save a lot in taxes by keeping the asset mix rightly balanced. Find out all you need to know about Family Limited Partnership and how it can help your business right here https://beamalife.com/.