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 for business owners. The plan will likely include some of these key elements:

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.

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.

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.