Estate Planning for Small Business Owners
Small business owners are so focused on growing their companies that they can overlook what will happen to their business—and their family—if something unexpected occurs. Estate planning is not just for the ultra-wealthy; it is an essential tool for protecting what you have worked so hard to build. Here are the top five things small business owners should consider:
1. Create or update your will
A basic will might ensure that your assets are transferred to the people you intend to benefit, but for business owners, there are more issues to consider. Will your business carry on after your death, or be wound up? Who has the necessary skills to deal with your business interests after your death? Who do you want to receive your business interests? Are there restrictions on how, when or to whom you can transfer them? An experienced estate planning lawyer can walk you through how to address these considerations in your will.
If your business interests have significant value, you may also want to discuss multiple will planning with your lawyer. This type of planning can avoid probate tax on your corporate assets and allow for a quicker and more efficient transfer of those assets after your death.
2. Have a clear business succession plan
Who will run your business if you become incapable or die? A formal succession plan should outline who takes over the business and how. It is important to talk about your business succession plan with the individuals who will be carrying it out or who will be affected by it. Discussing your plan with stakeholders and loved ones now will minimize confusion and conflict in the future. This is vital whether your goal is to pass the business to a family member or partner or sell it entirely. Your business succession plan goes hand in hand with your estate plan.
3. Create powers of attorney
A power of attorney for property allows you to name someone you trust to make business and financial decisions, if you become incapable of doing so on your own. Without a valid power of attorney for property, there could be a significant impact on your business operations, if you are sick or injured.
As a business owner, you may need to consider whether you need two separate powers of attorney—one to deal with your business interests and one to deal with your personal assets—or whether there is someone in your life who is well suited to make financial decisions on your behalf with respect to both.
4. Consider life insurance strategically
Life insurance can provide liquidity after your death to help your estate trustee deal with immediate expenses, such as paying taxes or debts or buying out partners. Depending on the nature of your business, you may also want to consider a “Key Person” insurance policy for your business to ensure your partners can keep the business afloat when you die.
5. Keep business and personal assets separate
Many small business owners intermingle their personal and business finances. If you become incapable, this can complicate the management of your property and the administration of your estate, potentially exposing personal assets to business liabilities. Good recordkeeping and seeking advice about the right corporate structure for your business will help protect your personal assets.
Estate planning for business owners is not a one-size-fits-all proposition. The right plan depends on your goals, your family situation, and the structure of your business. The key is to start early and revisit your plan regularly, as your business grows and your life changes.
Need help with your estate plan? Schedule a consultation with one of our lawyers to discuss the best way to protect your personal and professional legacy.