4 Keys to Smart Estate Planning for Small Business Owners
Preparing your company for your incapacity or death is vital to the survival of the enterprise. Otherwise, your business will be disrupted, harming your customers, employees, vendors, and ultimately, your family. For this reason, proactive planning – including your business and your estate plan – is key. Below are some tips on business and estate planning for small business owners, including how to help you protect your company and keep the business on track and operating day-to-day in your absence.
4 Tips for Successful Business & Estate Planning for Small Business Owners
Tip #1: Prepare for the Unexpected
If you are a small business owner, your focus is likely on keeping the company running on a daily basis. While this is important, looking beyond today and considering what will happen if you can’t run your business should be on the top of your to-do list. If you die or become incapacitated without a plan in place, you will leave your heirs without clear instructions on how to run your company. This can jeopardize the business you worked so hard to build. The right plan along with adequate insurance can help keep your business running regardless of what happens.
Tip #2: Execute the Proper Business Planning Documents
If your company has several owners, a buy-sell agreement is a must. This contract will outline the agreed upon plan for the business should an owner become incapacitated or die. Provisions in the buy-sell agreement will include:
- how the sale price for the business and an owner’s interest are determined,
- whether the remaining owners will have the option to buy the incapacitated or deceased member’s interest, and
- whether certain individuals can be blocked from participating in the business.
Tip #3: Execute the Proper Estate Planning Documents
A properly executed will or trust will allow you to state how you would like your assets to be transferred – and who will receive these assets – at your death. A will or a trust also lets you identify who will take charge of the assets and manage their disbursement (including your business accounts) according to your wishes.
Although a will can be used to pass assets at death, creating and properly funding a trust allows any assets owned by the trust to bypass the probate process making distribution of assets to heirs much faster, private, and may reduce the legal fees your heirs will owe.
Additionally, a trust can help your loved ones manage your trust assets if you become incapacitated. While you are alive and well, you typically act as the trustee of the trust, so you can manage your business and assets with little change from the way you do now. But unlike a will, a trust allows your successor trustee to step in manage things if you become incapacitated. This process avoids court involvement, allows for a smooth transition of trust management (which can be very important if your business is an asset of your trust), and proper continuing care for you in your time of need. Although having a will can be a great way to start, most business owners are much better off with a trust-based estate plan.
Tip #4: Purchase Additional Insurance
Whether you own the business by yourself or are a co-owner, an important part of estate planning for small business owners is having a separate term or whole life insurance and a disability policy that names your spouse and children as beneficiaries. The money from these policies will help avoid financial hardship while the buyout procedures of buy-sell agreement are being carried out.
Tip #5: Work with an Estate Planning Attorney
There is nothing optional about estate planning for small business owners. Having a plan for your business in the event you are unable to continue managing the company is essential to keep the company going. At McDonald Law Firm, we can explain the many options you have to protect your enterprise so that you can focus on what you do best — running your company. Give Andre O. McDonald, a knowledgeable estate planning, special needs planning, Medicaid planning, and business planning attorney serving Howard, Montgomery, Baltimore, and Prince George’s Counties a call today, at (443) 741-1088 to get started protecting your business.
DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT ENTENDED TO CONVEY LEGAL OR TAX ADVICE.