Business Succession Planning in San Jose and Santa Cruz, CA

The business succession planning attorneys at Penrose Chun & Gorman LLP realize, that for many of our clients, their business is the most valuable asset they own. Unfortunately, many business owners and their advisors fail to recognize that the sale of a business may present the most important estate planning opportunity they will encounter.

Many business owners rely solely on the assistance of corporate counsel in connection with the sale of the business, and fail to inform their estate planning attorney until after the sale is already completed.

Important Factors to Consider in Business Succession Planning

Business owners should consider the following:

  • Who will manage the business if you become disabled or pass away?
  • Should you leave your business to your children? If only one child is active in the business, you may wish to consider leaving the entire interest in the business to that one child, with other assets offsetting the value of the business passing to your other children.
  • Are there any professional licenses or other restrictions on the transfer of the business? This is an important consideration in certain professions that require a professional license or in the construction or contracting industry.
Leveraging Discounts

Effective estate planning often involves leveraging a business owner’s use of his or her lifetime exemption for gift tax purposes. Leveraging discounts refers to gifting assets after taking a discounted fair market value of the asset for estate and gift tax purposes.

There are two basic types of discounts; a discount for lack of marketability and a discount for lack of control. The two types of discounts are related: the holder of a minority interest in a business generally has little authority or control over the management or affairs of the business (discount for lack of control). When the holder of a minority interest therefore attempts to sell his or her interest, they usually have difficulty finding someone who is willing to purchase a minority interest (discount for lack of marketability). The amount of the discount depends on the size of the minority interest and the nature of the business, and must be determined by an independent professional appraiser.

Another discount may result from the transfer of a minority interest to an estate planning vehicle such as an intentionally defective grantor trust (IDGT), or a grantor retained annuity trust (GRAT). These advanced planning techniques can result in substantial additional discounts of anywhere from 20-80%, depending on a number of variables including the current interest rates, client’s age, and amount and type of minority interest.

If you are contemplating selling an interest in a business, or if you have a business interest that comprises a significant portion of your estate, you have the unique opportunity to save substantial gift and estate tax dollars. Contact the estate planning attorneys at Penrose Chun & Gorman LLP to explore your planning options.

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Steven D. Penrose

Practice Areas: Estate Planning, Estate and Trust Litigation, Business Succession Planning, Probate Litigation, Estate and Gift Tax Planning, Estates and Trusts, Fiduciary Law, Powers of Attorney, Advance Health Care Directives, Real Estate Law, Entity Formation, Civil Litigation

Edward L. Chun

Practice Areas:Real Estate Litigation, Trust and Estate Litigation, Business/General Litigation, Civil Litigation

J. Kenneth Gorman

Practice Areas:Estate and Trust Litigation, Civil Litigation, Construction Defects Litigation, Personal Injury, Business Litigation, Real Estate Litigation, Agricultural Litigation

Anna M. Penrose-Levig

Practice Areas: Estate Planning, Civil Litigation, Estates and Trusts, Powers of Attorney, Advance Health Care Directives

Khrystsina Kisel

Practice Areas: Estate Planning, Trust Administration, Probate Litigation, Civil Litigation