It is a beautiful day. I plan to get out at lunch and break in my new walking shoes. I have some big fitness plans this year, which I will tell you about later. I keep thinking every day that I will leave work in time to walk my dogs at home before dark. That has not happened yet. Now, Im taking the “bull by the horns” and will commit to making it happen today.
Having a plan is great but it’s the follow through where the magic happens, right? In business, planning is essential to controlling the outcome. Owning a business involves more than estate planning when you design the future of your business. Are you so busy working “in” your business, that you have not made time to even think about transitioning the wealth, assets and income? Business succession planning can involve multiple layers and have lots of moving parts to accomplish your goals. If your not ready to put the plan in place, then take some time to begin considering what you want, and your options to get you there.
Enjoy the weekend.
4 Key Elements Of a Small Business Owner’s Estate Plan
If you’ve dreamed of leaving your company to your family but haven’t sufficiently included your business in your estate plan, that dream could become a nightmare for your heirs—and for your business’ team members and clients, too.
To ensure your company is passed to your family in exactly the way you desire, you want to create a comprehensive estate plan. The plan will likely include some of these key elements:
1. Living Trusts
Although you might think a will would sufficiently protect your business assets, a living trust will keep your business out of court, whereas a will won’t. While a will coordinates the division of your assets following your death, a living trust is a separate legal entity that effectively owns your share of the business, though without any tax consequences or change of control until after your incapacity or death.
Unlike a will, assets put into a living trust are not subject to probate. Beyond avoiding the hassles of probate, this also means your business affairs will remain private. A living trust has several other advantages over wills: It transfers your assets immediately upon your death in the privacy of your attorney’s office; it lets you designate a successor to take control of the business; and it saves on estate taxes, court costs, and legal fees.
2. Life Insurance
Unless your business generates significant cash flow—and will continue to do so upon your death—that income might not be enough to financially provide for your family. To offer a safety net for your heirs, team, and customers, invest in life insurance to provide liquidity while your family handles your affairs.
3. Buy-Sell Agreements
If your business has multiple owners, you’ll likely need a buy-sell agreement. A buy-sell agreement ensures that upon certain conditions—like the death or disability of a partner—the remaining owners are able to purchase your shares of the business, or your shares will pass directly to your heirs.
This will prevent your beneficiaries from getting stuck owning a business they don’t want and can’t sell, and it also protects your remaining partners from being forced to deal with new owners they didn’t count on.
4. Succession Plan
If you hope to pass control of your company to your family, you’ll need a succession plan to make sure your heirs know how to successfully run the business you’ve created or sell the company without you.
If you want a specific family member (or team member) to run the business, you should designate that person in the plan, and then explain exactly how and when the business will be transferred to him or her. If you want the business sold, you’ll want to start planning for that now.
To protect your business with an estate plan, start by meeting with your Creative Business Lawyer®. We’ll guide you through the process, allowing you to rest easy, knowing your family, team, and customers will be properly taken care of.
This article is a service of Christine Faulkner, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.