4 Key Elements of a Small Business Owner's Estate Plan
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4 Key Elements of A small business owner's estate plan
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Have you dreamed of leaving your company to your family, but you haven’t sufficiently included your business in your estate plan? If so, listen closely because it could quickly turn into a nightmare for your heirs, as well as, your business’ team members and clients, too. To ensure your company is passed to your family in exactly the right way, you need to establish a comprehensive estate plan. This plan will likely include:
1. Living Trusts
You may believe a will would sufficiently protect your business assets, but a living trust can keep your business out of court, unlike a will. A will coordinates the division of your assets following your death, but a living trust is a separate legal entity that will effectively own your share of the business. Although this is without any tax consequences or change of control until after your incapacity or death.
2. Life Insurance
Unless your business can generate significant cash flow and you know it will continue to do so when you die, that income might not be sufficient to financially provide for your family. To offer a safety net, invest in life insurance to provide liquidity while your family handles your affairs.
3. Buy-Sell Agreements
If you have multiple owners in your business, you will need a buy-sell agreement. This ensures that upon certain conditions, like death or disability, the remaining owners are able to purchase your shares of the business, or your shares will pass directly to your heirs. This should prevent your beneficiaries from getting trapped owning a business that they can’t sell. It will also protect your remaining partners from being forced to deal with new owners they didn’t count on.
4. Succession Plan
If you intend on passing control of your company to your family, you need a plan to make sure that your heirs know how to successfully run the business you’ve created or sell the company without you.
Should you desire a specific member of the family to run the business, you need to designate that person in the plan. 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 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.
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