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Basics of Estate Planning for Your Business

Many of us understand the importance of estate planning from a personal standpoint; we’ve taken the necessary steps to designate fiduciaries to take care of ourselves and our families in the event of disability or death. Through important documents like powers of attorneys, wills and trusts, we have made sure our last wishes are documented and that the correct guidance is available to those who will carry-on after we’re gone.

Estate Planning for your Business is Just as Important

But for those of us that also have our own businesses, a similar approach is just as warranted not only for the continuation of the business but also for the protection that our business and its value. In recent years, banks that became subject to additional federal regulation were required to develop and implement their own “living wills” in the event of emergency conditions. A similar approach for a business of any size is just as warranted.

What Do You Need?

A good business succession plan involves many important documents. Internally, a clear hierarchy of roles will help the business identify who should step in and step up when a senior executive is no longer available. Adherence to corporate and organizational formalities will allow you and your business to weather that storm.

But what if the situation is prolonged because of disability or death of an owner or key player? Does your business have the correct succession plan in place? Buy-sell agreements can help you identify potential successors to operate and carry-on the business, while perhaps more importantly, ensuring that adequate and fair values are paid if the business is transferred. Because you are here to develop and negotiate such agreements while still living, you’ll be in a better position to structure them in a way most beneficial to the business and your heirs.

Many of us are familiar with the benefits of life insurance in our personal planning, but those same policies, when made a part of business buy-sell agreement, can provide almost immediate liquidity to carry-out the purchase so that value of our business in real dollars can be transferred to your spouse or children. But just as with individuals, the wrong or no policy can leave a business succession plan with an appropriate party to carry-on, but without the funds to make it happen.

Who Should You Consult?

If you have taken the steps to implement a business succession plan, be sure your team has the right players to carry-out the plan. An attorney familiar with both business issues and estate planning can be invaluable as you craft your plan. Additionally, a CPA or tax advisor may be necessary depending on the value of the company involved. Don’t let Uncle Sam take too big of bite; your attorney and tax advisor should work together to structure a plan that provides the most for you company and your heirs. And while you’re thinking about the financial side, be sure to include your financial planner. A consummated buy-sell could result in significant assets coming into your estate or passing to your heirs. Be sure those funds are properly protected, and that the recipients are aware of just what they’re receiving. Buy-outs from a business succession plan might seem like a windfall, but just like with retirement, care needs to be taken to ensure those funds last.

When Should You Start?

The sooner the better. Estate planning for your business can take many shapes. Some the business owner can control, some they can’t. But attacking the question early, investigating the options and making an informed choice will always be a better solution than being forced into a situation or deal you don’t want. To that end, implement parts of your business estate plan at the same time to you implement your personal plan, and certainly review it every 3-5 years.

Estate Planning Related Content

Learn more about Estate Planning

Create your Estate Planning Checklist

Begin your estate plan with our free Estate Planning Questionnaire