4 Estate Planning Documents No Entrepreneur Should Be Without
What would happen to your business upon your death? What happens if you become incapacitated? Although most entrepreneurs understand the value of effective business planning, fewer are aware of the critical role estate planning plays in their company’s ongoing success. Estate planning is one of the single-most important things you can do for your business.
Your business is likely your most valuable asset. Without a proper estate plan, the business you worked so hard to build could be in serious jeopardy if something happens to you. Estate planning is vital not only for your company’s continued survival, but also for your family’s future prosperity.
Fortunately, you can shield your company and family with the use of a few key estate planning tools. A skilled planning professional with experience advising entrepreneurs, such as Attorney Longa Vaillancourt here at Longa Law Firm, will help you to determine the specific planning vehicles best suited for your particular situation. This is not an area where a generic solution will fit all businesses and their owners, but the following tools are among the most essential for small-business owners.
A living trust may be a good way to ensure your business’s continued success upon your death or in the event of your incapacity. Unlike a will, assets held in a trust are not required to go through probate and are immediately transferred to the person, or persons, of your choice in the event of your death or incapacity. The assets can also be held and managed by the Trustees until transfer is ideal.
Should something happen to you, a trust would allow for the smooth transition of control of your company, without the time and expense associated with probate or guardianship. Using a trust, you can choose the individual(s) you want to run your company in your absence, whether your absence is permanent (your death) or temporary (your incapacity).
Additionally, trusts are not open to the public, so your company’s affairs would remain private. With a properly drafted trust, transfer of ownership would take place in your lawyer’s office, not a courtroom.
Creating a business succession plan can help ensure your operation doesn’t fall apart when you pass on. Beyond simply naming a successor, a comprehensive succession provides stability and security by allowing you to lay out explicit instructions for how the company should be run.
From specifying how ownership should be transferred and providing rules for compensation to establishing dispute resolution procedures, an effective succession plan can provide the new owner with a detailed roadmap for your company’s continued success.
If you share ownership of your business with one or more other people, you’ll likely want to prepare a buy-sell agreement. A buy-sell agreement ensures that upon certain conditions—like your death or permanent incapacity—the remaining owners can purchase your shares of the business, or it can stipulate that your shares should pass to your heirs.
In this way, a properly drafted buy-sell agreement can prevent your family members from getting stuck owning a business they don’t want and can’t sell. A buy-sell agreement also protects your surviving partners from being forced to deal with new owners they didn’t count on.
Unless your business generates significant cash flow—and will continue to do so upon your death—that income might not be enough to financially provide for your loved ones. To offer a safety net for your family, team, and customers, invest in life insurance to provide liquidity while your family handles your affairs and your successor assumes control.
If your company has multiple owners, you can pair life insurance policies on each partner with your buy-sell agreement. That way, your remaining partners can buy out your shares at a previously agreed-upon price, and the life insurance can help pay for the buyout.
Don’t put your business at risk
Every business owner must make sure that legal authority for vital tasks is transferred in the event of the owner’s incapacity or death. Otherwise, if the owner gets sick or dies, his or her business will be paralyzed and may be forced to close.
COVID-19 presents an opportunity for you to stop and consider your business legacy. If you have not created a proper estate plan, your business is missing one of its most essential components. Schedule an appointment with us today to discuss this vital planning.