Inheriting a Family Business: Some Crucial Things You Should Know
A family business is a type of business that is owned or run by members of one family. Family businesses have several advantages over other business entities, including long-term focus and commitment, which contributes to stability, continuity, and legacy, a dedicated workforce, and personal investment. When a family business owner dies, it is common for another family member to inherit the business. Ownership of a family business can be transferred to beneficiaries or heirs, according to what is in the decedent’s Will or another estate planning document or the state’s inheritance laws.
When it comes to inheriting a family business, there are some crucial details you need to know. Below, we share some vital things you should know about inheriting a family business.
Pros and Cons of Inheriting a Family Business
Inheriting a family business has several advantages. However, there are also several disadvantages of inheriting a family business. There are no general pros and cons of inheriting a family business, as each situation is unique. The advantages and disadvantages of inheriting a family business will depend on the individual circumstances and nature of the company. That said, below are some of the possible pros and cons of inheriting a family business.
Advantages:
- Familiarity with the business
- Inherited knowledge that can make running the business easier
- Established reputation
- Existing networks
- Employee loyalty
Disadvantages:
- High expectations and pressure
- Succession challenges
- Lack of experience
- Debt or financial burdens
Interested Parties Can Contest a Business Inheritance
Beneficiaries, heirs, dependents, creditors, and other interested parties can contest a business inheritance. However, an interested party cannot contest a business inheritance simply because they don’t like it. An individual must have legal grounds for contesting. Common acceptable grounds for contesting a business inheritance include lack of testamentary capacity, fraud or forgery, duress, and improper execution of the estate planning document.
If involved in a dispute over a family business inheritance, it is crucial to involve a skilled probate litigation attorney. A qualified lawyer can explain your legal rights and help protect them.
Are You Required To Pay Tax After Inheriting a Family Business?
In California, you are not required to pay inheritance tax after inheriting a family business since there is no federal or state inheritance tax. With inheritance tax on the state level, you are required to pay inheritance tax if you inherit a family business. Examples of such states include Pennsylvania, Kentucky, New Jersey, and Nebraska.
For people in states with inheritance tax, the amount of inheritance tax depends on several factors, such as the state where the decedent resided, the relationship to the deceased, and the value of the inheritance. For example, spouses usually receive favorable treatment. The spouse of a deceased individual may be exempt from inheritance tax. If they are not exempt, they may be subjected to lower rates.
It is important to mention that while you may not be required to pay inheritance tax after inheriting a family business if you sell the company, you may be required to remit income taxes on your capital gains.
Contact Us for Legal Help
If you need legal help, contact the skilled and dedicated California probate lawyer, Robert L. Cohen – The Probate Guy – today to schedule a consultation.
Southern California Probate Lawyer Serving Orange, Riverside, Anaheim, Whittier & Beyond.
