When you’re a small business owner, especially when the business is dependent on you as the owner, which most are, estate planning is essential. Estate planning is important for everyone, but when you’re a business owner you’re planning has additional layers that need to be dealt with, about not only your personal finances but your business.
If you’re a small business owner and you don’t proactively deal with estate planning and succession planning for your business, and you do unexpectedly pass away, your business may not be able to continue. Your family will also suffer because along with the potential for the business shutting its doors, the entire business, and its assets will have to go through a lengthy and expensive probate process.
The following are some tips and things to think about as a small business owner who’s working on an estate plan.
One of the first things you might consider as you’re creating an estate plan for not only yourself but your business is a buy-sell agreement.
This represents a contract between partners or shareholders, and it outlines a plan that would be implemented in the event of the death of the owner. The buy-sell agreement creates a sale price for the business, as well as your share.
It gives you a lot of control as the owner regarding whether or not particular people will be able to buy your part of the business, the price of the business, and it also dictates the procedures for your heirs buying your part of the business.
When you’re a sole proprietor, your business is the same as your personal assets.
That means if you have business debts, those can become personal liabilities for your estate, which can be problematic for your spouse or family.
You need to set up a plan for who will take over your business, and if you want it to be sold in the event of your death, you should also set up a plan to make this easier for your decedents.
When people think of estate planning, a will is often the first thing that comes to mind, but for a business owner, a living trust can be better to handle the assets of your business. With a living trust, you’re creating an entirely separate legal entity, and this entity will control what happens to your assets.
The trust owns your assets, so when you pass away, nothing has to go through probate.
This will save your heirs, business partners or other people involved from having to pay things like legal fees and estate taxes.
If you’re part of a family-owned and operated business, you’ll have to think about how much control you want your heirs to have, and whether or not they’ll have equal shares.
It’s important to create a succession plan that clearly outlines what will happen to reduce strife among the family charged with maintaining the business after your death.
Estate planning for small business owners isn’t necessarily easy, but it is essential to protect your business and your heirs after you pass away, and it’ something that shouldn’t be put on the back burner.