As a small business owner it is easy to get bogged down in the minutia of the day-to-day. I know, because I am a small business owner too. It’s import, though, to take a step back every once and a while and examine the future of your business. Most small business owners look ahead and plan for the new goals they will hit when they go through the exercise of planning. Have you ever planned what would happen to your business if you were no longer at the helm? This is often overlooked, but it is vital for you to protect what is possibly your greatest asset from your own illness or death.
If you have ever dealt with the death of a family member you can probably attest to the difficulty of transferring all the assets and wrapping up your loved one’s estate. If you did help wrap up an estate and there weren’t any problems you should thank your loved one for setting up the plan that made it so smooth. If you did have any hiccups in administering an estate though, you can only imagine how difficult it would be to manage an estate in which one of the main assets is a small business. If a poor plan or no plan at all was created for that small business, this will create an issue for customers, potential customers, employees, and ultimately the family of the business owner.
Here are a few ideas that can help you plan for your possible death or incapacity, as it relates to your business
Create the right business documents: If you have created business documents in the past, it was probably mainly for tax reasons, so that you would have a cleaner tax return, etc. The proper business plan, however, can do much more than streamline your tax issues. The proper business plan will include a buy-sell agreement that helps determine: how a sale is conducted, whether surviving family members have the option to buy if the business owner is deceased or incapacitated, and whether some individuals will be specifically excluded from the right to purchase parts of the business or participate in the business at all.
Create the right Estate Planning Documents: A will (or more commonly a Trust in California) will direct your survivors how assets should be transferred at death and how to care for your assets should you become incapacitated and can no longer care for these assets. It is especially important to create a trust for business owners because the trust can allow the people you choose to continue a business if you have become incapacitated, where a will only allows the executor of the will to take over after you have passed.
Purchase additional insurance: There are insurances specific to business owners that can allow your business the funds it needs to keep operating in preparation for a sale should you become incapacitated or die.
Talk to an estate planning attorney: Small business owners need a top-notch estate plan because operating a small business while the owner is incapacitated or after the owner dies is so much more difficult than administering a regular estate plan. If you are local, give us a call.