10 Apr Estate Planning for Business Owners
What will happen to your business if something happened to you?
You’ve worked hard to build your business and secure a better future for yourself and your family. In the beginning, you were the engine that kept the whole business running, but now you’ve built up your team and have employees and other team members in the business. Or, if you don’t yet have employees, you’re definitely THE only one keeping the business going – it’s entirely dependent on you being there now and in the future. But what about the future? Have you considered what would happen to your business and assets if something were to happen to you? This is where estate planning comes in.
Planning for the Future of Your Business
Estate planning is the process of creating a plan for the management and distribution of your assets after your death. Most people think of a will but estate planning is much more than just a will, especially for business owners.
Without an estate plan, your business will be hung up in state court for months without anyone to run the ship in in your absence. Without a plan, your business will have no leader during this pivotal time. Will your employees continue getting paid? For how long? Will your customers continue being serviced properly? Will the business’s bills get paid? In short, will the business stop working when you do? If so, it’s critical you protect what you’ve worked so hard to build. An estate plan is the way to do that.
Make Sure the Business Runs According to Your Wishes, Not the State’s
Without an estate plan, your business and assets will be distributed according to the state’s default laws, which won’t align with your wishes. The state will only follow your wishes if you provide them a legally-enforceable written roadmap for what you want to happen. Again, that’s where your estate plan comes in.
Your Legally Enforceable Written Roadmap
Since you’re a business owner, many components of your estate plan will differ from the estate plan of someone who is not a business owner. For example, your will, trust, and powers of attorney will need to have specific provisions dealing with you what you want to happen with your business. You should also make sure your governing documents such as bylaws, operating agreement, and shareholder agreements don’t have language that conflicts with your personal estate plan documents. Ideally, you should have a buy-sell agreement that provides for the orderly transfer of your equity in the event you die or are incapacitated.
How to Take Action
Getting your estate plan has many traps for the unwary and it’s important to get it done right. Seemingly minor technical errors can completely invalidate your plan. You need expert advisors who know this area of law well as it is very complex. There are a lot of moving parts that involve experience with multiple areas of law. It is not for law firms who “dabble” in preparing wills or only do basic estate planning. Make sure you get the right guidance by discussing this decision with your business and estate planning attorney, CPA, and financial advisor.