Businesses can often live longer than their owners. Some of the oldest companies in the United States, such as Caswell-Massey, Hartford Courant, and King Arthur’s Baking Co., have been around for centuries and are still family-owned.
At some point, you’ll have to consider how your family will inherit your business. That’s why it’s essential that you need to know inheritance laws. Here’s what you need to know about them.
The United States follows two inheritance laws: community property and common law. Some states following community property are Arizona, California, Idaho, Louisiana, and Nevada. In addition, Alaska has community property laws if couples opt into them. Most of the states follow the common law.
In community property states, husband and wife own any property acquired during the marriage. So, if one spouse dies, the other spouse will automatically inherit half of the business. The other half will go to the deceased spouse’s heirs through their estate.
Common law states are everywhere else in the United States. In these states, each spouse owns the property that they acquired during the marriage. So, if one spouse dies, their interest in the business will pass to their heirs through their estate—regardless of whether the surviving spouse is listed as a co-owner on the business’s legal documents.
In the United States, inheritance taxes are only levied at the state level. So, if you live in a state with no inheritance tax, you don’t have to worry about paying one.
However, if you live in a state with an inheritance tax, you’ll need to pay it on any property you inherit from your spouse—including your half of the business. The good news is that many states exempt spouses from paying inheritance taxes. So, if your spouse dies and leaves their half of the company to you, you probably won’t have to pay an inheritance tax on it.
Estate taxes are different from inheritance taxes. Inheritance taxes are levied on the property that you inherit from someone. On the other hand, estate taxes are set on the value of someone’s entire estate—regardless of who inherits it.
Currently, there is a federal estate tax in the United States. However, it only applies to estates worth more than $5.49 million. So, unless your spouse’s estate is worth more, you probably won’t have to pay any estate taxes.
State Estate Taxes
A few states also have their estate taxes. These taxes are separate from the federal estate tax and usually apply to estates worth less than the federal threshold. So, even if your spouse’s estate isn’t subject to the federal estate tax, it may still be subject to a state estate tax.
Knowing these laws can help you and your inheritors understand how they can get your assets. But how do these laws affect your business?
Your Business and Inheritance Laws
If you want your business to be inherited by your spouse, you need to make sure that it’s classified as community property. Otherwise, your spouse may not inherit it automatically.
To do this, you’ll need to ensure that your business is registered in a community property state and that you and your spouse are listed as co-owners on the business’s legal documents.
If you don’t want your spouse to inherit your share of the business, you can opt out of community property laws by registering your business in a common law state. However, this means that your spouse could still inherit your share of the business through their estate—regardless of what you put in your will. When this happens, you should hire an experienced family lawyer to help you out. Such a lawyer can help you understand these laws and your options.
When it comes to taxes will affect your business in various ways. Estate taxes can have a significant impact on businesses. If your spouse’s estate is subject to the estate tax, the value of your business could be reduced by up to 40%.
Inheritance taxes can also affect businesses. For example, if you live in a state with an inheritance tax and inherit your spouse’s share of the company, you may have to pay an inheritance tax. However, many states exempt spouses from paying inheritance taxes.
Finally, keep in mind that these laws can change. So, it’s essential to stay up-to-date on the latest changes. You can do this by talking to a lawyer or accountant specializing in business law. Moreover, no matter where you live, it’s essential to have a will that states what you want to happen to your business when you die. This document can help ensure that your wishes are followed—even if they don’t match up with the inheritance laws in your state.