If you run a small business, there are extra considerations that you have to think about for you and your family when setting up an estate plan. Read this article to learn more so you can take into account of how you can protect your business and family!
What are the benefits of having an estate plan for small business owners?
Owning a small business adds a new layer of complication when it comes to preparing your assets for succession. Although your current focus might be on growing your business, you should put equal consideration into determining who will inherit the company and what your heirs should do with it after you’re gone.
Why is estate planning important for small business owners?
Creating an estate plan for your small business ensures that the business you’ve poured your heart and soul into is managed in the way you want it to be—whether you want your family to continue building your legacy, your business partners to buy your shares or your heirs to sell the business for a fair price. Having a well-thought-out estate plan in place helps your beneficiaries follow a clear plan of action if you pass away.
First and foremost, your estate planning should start with a will. However, the estate planning process might require a number of other elements to make sure your business lands in capable hands.
1) Buy-sell agreement
Buy-sell agreements are important for small businesses with multiple owners. These agreements typically allow existing business partners to purchase your shares of the business upon certain conditions, such as your death. They dictate who can and cannot purchase the shares and provide a sale price.
Establishing a buy-sell agreement ensures that your heirs don’t inherit a business they don’t want and that the shares are purchased for a fair price.
2) Life Insurance
Life insurance policies are important to small business owners for a few reasons. Your business might not offer enough cash flow to provide for your family or heirs after your death. To ensure they have enough liquidity to manage your affairs and be well taken care of, a life insurance policy can be a great investment.
Life insurance policies might also be useful for helping remaining business partners buy out your shares of the business if you name them as beneficiaries.
3) Succession plan
Many business owners dream of passing their business down to their family members. If this is your goal, creating a succession plan can ensure this process goes smoothly and sets your beneficiaries up for success.
In your succession plan, you should designate an heir to inherit the business and provide details on when and how they should gain control of it. You should also create a strategy to pass on important information and delegate authority and responsibility to successors. If you’d prefer the business to be sold upon your death, your succession plan should state so and explain how.
While you’re preparing your succession plan, be sure to organize all key records, so any important business and financial information is accessible.
4) Living Trust
Small business owners might also want to consider establishing a trust that holds their shares of the business. Putting your business shares into a living trust instead of a will keeps your business out of court and protects it from probate.
Through the trust, your business assets can be transferred to a new owner that you designate privately without the hassle or fees of probate court.
Is your business prepared?
Small business owners should not neglect estate planning without their company in mind, or the legacy they’ve worked hard to build might end up in the wrong hands. To learn more about estate planning for small business owners, contact the experienced team of estate planning attorneys at Amity Law Group. Contact us to schedule a free consultation.