Business owners tend to have the busiest schedules, so much so that they forget about planning their estate, much less how important it is to protect their family’s future. And as you can expect, failure to plan one’s estate can lead to drastic consequences for the next generation, especially for business owners with complicated family situations.
Business estate planning helps ensure that your business will fall into the right hands after you pass or become disabled. Furthermore, it is important to ensure that your business matters will proceed according to your last wishes and be conducted by the person you trust the most.
That said, here are several estate planning tips that all business owners should know:
It is ideal to have an estate plan as soon as you get married, have a child, or start a business—regardless of how many assets you have or how much you are worth. No one knows when they will die, and having an estate plan in place will help ensure that your assets will go to the right people if you pass away unexpectedly.
As soon as you acquire dependents or start a business, work with a reliable estate planning attorney to start a will and a basic estate plan.
Update your estate plan regularly
Planning an estate is not a one-and-done deal; you have to update your plan regularly, especially after a major event in your life, such as a marriage, a birth, a death, or a divorce. The same applies if there are major changes in your business, like an expansion, a new business partner, or a relocation.
Otherwise, the existing version of your estate plan will be the one acted upon once you pass away. If major changes in your life have occurred after you last updated your estate plan, this could lead to difficulties for your family and your business. For example, if you divorced your spouse but failed to write them off your will, they have the right to your assets after you pass, which may not be in line with your final wishes.
Address issues for a family-owned business
If you run a family-owned business, it is crucial that you sort out issues as soon as possible, especially if you have multiple children. Failure to do so can result in sibling conflicts after you pass away and leave the rights to the business ambiguous.
For instance, if one child wants to take over the business and one doesn’t, you can consider granting the business assets to the former and all other assets to the latter. On the other hand, if multiple children want to take over the business, you can sit down with your children and lawyer to figure out how to divide the business rights equally.
These are only some of the common examples of potential issues for family-owned businesses. In any case, working with an estate planning lawyer can help you sort out these problems as early as possible, thus avoiding family conflict in the future.
Create a succession plan
An estate plan specifies who is entitled to your estate and who will take over the business after you die or become disabled. A succession or continuity plan, on the other hand, details how you, your family, and your business will prepare for a transition in ownership. It is similar to a business plan, containing information about your business, finances, organizational structure, target market, and competition.
A succession plan will contain a proposed organizational structure in the event of a transition. Notably, it specifies what positions employees will assume after you die or become disabled.
Make sure that your succession plan is consistent with your estate plan as they are not the same. Work with your lawyer to ensure that every document is consistent to avoid unnecessary legal problems in the future.
Talk to your future successor/s
Wills and estates are difficult topics to talk about, especially with family, but it has to be done to avoid conflict down the line. For example, if you want to pass on the business to your child, ask them if they are genuinely interested in taking over. Or, if your children do not want to run the business, talk about how the sale of the business and division of assets should proceed after you die.
Estate planning is essential, but it becomes even more important when you have a business on top of your other assets. That said, keep these business estate planning tips in mind—regardless of your age, status, or net worth today.