Everyone should have an estate plan that makes handling their affairs easier if they should become unable to do so for themselves (i.e. illness, disability, death). Not only is it essential for safeguarding your family, but estate planning can also protect your business. This is especially true if you want to ensure that your business continues to thrive when you’re unable to manage things.
Life is unpredictable. At any moment something could happen that renders you incapable of running your business. If you haven’t given some thought to who will run things and how you’d like operations to proceed when you are not in direct control, the future of your business could hang in the balance. Below is a more in-depth look at why business owners should consider working with a service provider like Lawyer in Blue Jeans to plan their estate. Proper Division of Assets Your business is likely one of your largest assets. Whether you want to sell your business and have the proceeds divided among your beneficiaries or you’d prefer someone to manage the business on your behalf, estate planning ensures everything goes according to your wishes.
Avoid Probate Court
When there is no estate plan in place, the decisions of your final affairs are left up to the court. Not only is this an expensive process, but it can be very intrusive and grueling for your loved ones. A judge will allocate and value your assets, pay bills and taxes, and divide what’s left between beneficiaries. In this process, neither you nor your loved ones will have much of a say in what happens. On top of all of that, this process can take months to complete leaving your business unmanaged the entire time. Business owners who create a trust (part of an estate plan), however, can avoid probate court altogether allowing attorneys or loved ones to handle their affairs.
Appoint an Executor or Power of Attorney
Should you fall ill, become disabled, or pass away, who will be in charge of making sure that your wishes for your business are carried out? Obviously, you’ll want to appoint someone you trust to be responsible, fair, and honest when it comes to managing the business. Because courts rely on law alone to make decisions about your business, it is essential that you legally put in place an executor or power of attorney. With effective estate planning, you have the option to make the selection of someone to handle the business on your behalf.
For businesses with multiple owners, a buy-sell agreement is highly recommended. This is essentially an agreement that the remaining parties will buy the departed business partner’s share or interest in the company. The buy-sell agreement also provides details on how that share will be paid out and to whom (usually the surviving family members).
Decide on Owners/Managers
Do you one day hope that your children will follow in your footsteps and take over your business? Succession plans are an intricate part of estate planning that help to ensure that your kids get the business. Not only can you determine who will take over, but you can make mandates such as age stipulations, education, and training requirements. For example, maybe you have a 16-year-old son that you’d like to take over the company once he turns 25. To run the business successfully, perhaps you also want your son to attend college and receive two years of training.
Save Money on Taxes
Transferring ownership of a business to relatives can come with a hefty price tag. This is due to estate taxes, which can be as much as 45-50% of the valuation of your estate. Paying these taxes often requires that relatives liquidate assets which, in turn, reduces the amount your loved ones would acquire. However, by creating a revocable living trust and transferring interest in the business to your family during the course of your lifetime, can save or eliminate the need to pay estate taxes altogether. Of all the things you’ve acquired in life, your family and your business likely mean the most to you. Why not do everything you can to protect them in the event that something should happen to you? If you don’t presently have an estate plan, now is as good a time as any to begin making plans to ensure that no matter what happens to you, everything you care for is covered.