Sound advice for busy business owners

When you own a small business, it seems as if every day is a whirlwind. No one could blame you for being overwhelmed--especially in this current economic environment. However, when it is possible, try to spare some time for estate planning.

This critical function is often overlooked by busy entrepreneurs. But a comprehensive estate plan may avoid a sale of a business interest at distress prices while managing to preserve assets for your loved ones.

Where do you begin? Start by considering the benefits you want to derive from your assets, the risks you are willing to take, and how much you will need for retirement or other purposes. Once you spell out your goals, you can formulate the best way to achieve them.

Next, provide your advisers with an inventory of assets. You can do this by simply listing all the assets you own in addition to your business interest (e.g., real estate, stocks, bonds, bank accounts, life insurance, etc.). With professional guidance, you can project the future net worth of these assets.

Furthermore, seek to minimize potential estate taxes. Note that transfers between spouses are completely exempt from federal estate tax. Currently, the federal estate-tax exemption can shelter other transfers of up to $3.5 million for 2009 (up from $2 million for 2008); the estate tax is eliminated for 2010. However, the federal estate tax will be revived in 2011, unless new legislation is enacted. No one is quite sure how this will eventually unfold.

You might also reduce your estate through lifetime gifts. For 2009, the annual gift-tax exemption covers gifts of up to $13,000 per recipient (up from $12,000 for 2008). In addition, special estate-tax breaks for business interests may be available. For instance, the federal estate tax due on a large business interest may be spread out over a 14-year period if certain conditions are met.

Finally, consider life insurance as part of your estate plan. In particular, business owners may rely on life insurance for its liquidity. If the policy is structured carefully, the proceeds can be received free of both estate and income taxes.

Of course, this is only a general overview that may not take your personal circumstances into account. It is important to have a plan designed to fit your specific needs.