The Importance of Estate Planning for Business Owners
There are countless things a business owner has to worry about, so it may feel daunting to think about planning for the future. In fact, according to a survey, about 3 in 10 business owners haven’t developed an estate plan yet. Business owners spend their lives building their dreams, so it’s important to make decisions as soon as possible about what you want to happen to your business and finances if you become disabled or pass away.
Wills for Business Owners
If you’re a business owner thinking about protecting your assets, a good first step is to have a will drafted. A will is a legal document that outlines how you wish to have your property distributed when you die. As a business owner, this document would allow you to dictate who takes over your business and assets. If you were to become incapacitated without a will, the business assets would be distributed to your heirs and spouse through probate according to state intestate laws. However, even with a will, the assets will still have to pass through the probate process, in which a court determines the validity of the will. Probate can be lengthy and expensive, but having a clear, properly written document can make the process somewhat easier.
A Power of Attorney Provides Flexibility for A Business Owner
A power of attorney (POA) is another important legal document that everyone, especially business owners, should have. A POA document would permit a designated agent to make important decisions on your behalf. This arrangement is most used when a person’s health situation incapacitates them and causes them to be unable to make these decisions for themselves. However, they also provide flexibility in other ways. For example, if you are traveling with your family but a potential business opportunity arises back home, your designated agent could sign documents and make arrangements on your behalf.
Trusts Provide Easier Administration
Trusts are legal entities in which the trust maker, or grantor, places assets to be used by themselves or their beneficiaries. While wills and power of attorney documents are important starting points for asset planning, trusts provide another level of security and flexibility. Unlike wills, trusts avoid the probate process, giving your beneficiaries quicker and easier access to the assets you intended for them. Trusts let you keep your business assets in your name, while allowing trustees to access and manage the assets, if needed. For example, your brother may have powers of attorney and be able to run your business if you become incapacitated – however, without a trust holding the business’ assets, he may not have legal access to the assets for purposes such as paying himself a salary.
Even if you just have to step away from the business for a period of time to tend to other matters, a trust will allow your trustees to step in and run the business on your behalf without a complicated change in ownership process. When you pass away, the trust distributes the assets to your beneficiaries, creating an easy transition to the next generation.
Life Insurance can Benefit the Family and Business Partners
No matter how well you plan your estate in advance, the transition process is not always seamless. Life insurance could be a particularly useful safeguard for business owners because it can provide additional support to your beneficiaries after your death. For example, if your daughter has to leave her job in order to take over the business, or there are growing pains in the first few months of new ownership that affect revenue; a life insurance policy is an inexpensive way to help stabilize your beneficiaries during this difficult period.
Life insurance is not only useful for your family, but also for your business partners. If a business has multiple owners, it is wise to have a life insurance policy on all of the partners. When a partner passes away, the death benefit can be paid to the other partners and used to buy out the deceased partner’s share.
A Business Owner Should Consider a Succession Plan or a Buy-Sell Agreement
While you’re looking ahead to the future with estate planning, it is wise to write a succession plan for your business as well. Your will and trust may designate the beneficiaries who will take over the business, but a succession plan goes further into detail about what the organizational structure of the business will look like when you’re gone. For example, your trust and will may indicate that your two children will take a 50/50 stake in your business when you die, but the succession plan could further outline how the responsibilities would be split. It is important to keep the succession plan consistent with other estate planning documents. Discrepancies in the documents that make your wishes unclear could result in unnecessary legal battles for your beneficiaries. Unfortunately, nearly three out of four business owners don’t have a written succession plan.
Perhaps you don’t wish for your business to continue on after you pass away, or you do not have a beneficiary interested in keeping your share of the business. It’s important to have include a buy-sell agreement in your estate plan to specify who can buy your share of a business after you pass away, and for what price.
Mortellaro Law is committed to protecting both your business and personal interests by providing superior estate planning and asset protection strategies tailored to fit your needs. Contact us today to schedule a free consultation with us to learn more about how our proven strategies can protect your legacy.