Every Small Business Owner’s Estate Plan Should Have These 4 Key Elements
By: Barry E. Haimo, Esq.
April 1, 2021
If you own your own business, you already know that keeping track of your finances is a much bigger job than it would be if you worked for an employer.
This also means that your estate will be much more complicated should you pass away or become incapacitated. Because of this, you’ll want to work with an estate planning attorney to ensure that you develop a comprehensive estate plan designed for business owners. Otherwise, dividing up your estate can become a living nightmare for your heirs.
Here are four key elements that any small business owner’s estate plan should include.
While a will coordinates the division of your assets following your death, a living trust is a separate entity that effectively “owns” your share of a small business, but does not have any tax consequences following your incapacity or death.
Assets put into a living trust are not subject to probate. This means that your heirs will be able to avoid the hassle of probate, and also that your business affairs will be private.
A living trust has several additional advantages over a will:
- Upon your death, your assets are transferred relatively quickly in the privacy of your attorney’s office
- You are able to designate a successor to take control of the business, who will conduct the business according to the succession plan
- Your heirs will have decreased estate taxes, court costs, and legal fees
Unless your business generates significant cash flow — and will continue to do so after your death — residual income from the business will not likely be enough to provide for your family.
To make sure that your heirs and employees have a safety net, invest in a life insurance policy to provide liquidity while your affairs are handled.
If your business has multiple owners, which is often the case, you will likely need a buy-sell agreement.
A buy-sell agreement ensures that upon certain conditions — for example, the death or disability of a partner — the remaining owners are able to purchase your share of the business, which will be passed directly to your heirs.
If you own a family business and hope to pass control of your company to your family or another trusted individual or entity, your estate plan will need to include a succession plan, which makes sure that your heirs know how to successfully run the business or sell the company on your death.
If you want a specific family member or employee, to run your business, the succession plan should designate that individual, and explain exactly how and when the business will be transferred, and how this individual is to conduct the business after your passing.
Even if you want the business to be sold, you will need to plan for its sale now, which would also be included in a succession plan.
If you own a small business and want to know more about how to plan your estate, get in touch with our offices.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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