Estate Planning for your Business

If you own your own small business, it’s likely that business is one of the two most valuable assets you own (the other being your real estate).  Integrating your business plan with your estate plan is therefore of critical importance.

Business succession planning can be quite complex and can vary widely depending on the nature of your business and your concerns.  This month, I’d just like to highlight some of the most common points to consider.

Get It in Your Trust.  If your business is organized as a corporation or LLC, you will own shares of the business, and not own the business assets directly.  Those shares are intangible assets, just like shares of IBM or Apple, and just like those, if you have a living trust you will want to put your shares in your trust.  But many small companies have restrictions on transferring shares (for good reason; you don’t want to end up partners with a stranger).  If your company documents specifically allow transfers into a living trust, this avoids any difficulties in trust funding later.

Consider How Partners Leave.  If you have partners in your business, it’s almost inevitable that one will leave the business before the others (whether voluntarily or not).  It’s critical to have this in mind when you’re starting your business, so you can have a plan in place to make this a smooth transition rather than a battle.

Have the Right Insurance.  One of the most common ways that people fund the buy-out of a partner is with life insurance.  But there are many other situations where a business owner (even a sole owner) can benefit from proper insurance coverage.  For example, if you become disabled, not only will you have the expenses involved in your care, but this may have a substantial effect on your business.

Who Will Take Over in an Emergency?  If you have partners, it’s likely that they will be able to pick up some of the slack if an illness or injury suddenly and unexpectedly makes you unable to run your business.  But those who are truly “going it alone” can’t rely on that.  The best way to handle this is usually to have an agreement with someone else (who has any necessary licenses), where you each agree to handle the other one’s business in the event of an emergency.  Not only does that benefit your clients, who are not left high and dry, but also your heirs, because it retains the value of your business.

The above are just a few of the many considerations in business succession planning.  If you have your own business, it’s not too late to put some of these protections in place before they are needed.