While they’re working hard at it, many small business owners fail to consider what will happen if they are injured in an accident, suffer an illness, or die suddenly. These business owners who don’t take the time to create an effective estate plan risk undermining a lifetime of hard work, jeopardizing the jobs of their staff, and endangering the future of their loved ones.
Here's a list of important estate planning essentials for the business owner:
A Will. This is the most basic estate planning document. It lets a person or a small business owner say how his or her assets will be distributed and to whom. A will also allows the person creating the will to name a personal representative or executor to be responsible for managing and disbursing the personal and business assets according to the testator's wishes. If the business is a sole proprietorship, the executor or a trusted family member should be given access to digital assets like online banking, email, and the company website. This should be a separate document from the will because a will is a public document filed in probate court.
Power of Attorney. This designates a person to handle the business affairs, if the owner becomes incapacitated. If you don’t have this, the court will appoint a guardian to manage the affairs—and his or her decisions may not jive with the business owner's wishes. It could also cause conflict with the other parties.
Trusts. A will, again, is a public document and is required to be probated in court. That can cause issues for a small business wanting to protect sensitive information. As a result, a business owner may want to consider a revocable living trust. This trust takes title to property but lets the creator of the trust or the trustees continue managing the assets during his or her lifetime. Because it’s "revocable," it can be modified. A trust can avoid probate, transfer assets to beneficiaries privately and quickly, and allow a business to continue operating.
Buy-Sell Agreement. A buy-sell agreement is critical for partnerships or companies with just a few owners. This document establishes a way of distributing an owner's interest if he or she dies or becomes disabled. It is also helpful if an owner declares bankruptcy or is going through a divorce. The buy-sell agreement will also detail how to value the business.
Succession Plan. An entrepreneur’s comprehensive estate plan should include a formal, written succession plan, which provides for the seamless transition of the business. A comprehensive succession plan will state how ownership will be transferred, establish rules for hiring, compensating and promoting family members, and detail how disputes will be resolved.
An estate plan is a must for an entrepreneur. If you fail to have a plan that enables the business to continue operating, then your partners and family members will have an extremely difficult time trying to manage the business assets … and the disputes that will no doubt arise. Hire an estate planning attorney to establish a course for the future.
Reference: business.com (November 15, 2016) “5 Estate Planning Tips for Entrepreneurs”