When you own a small business, your business itself is probably one of your most significant assets. Therefore, it’s critical you take the time for estate planning so everyone knows and can carry out your wishes when you pass on. Hopefully, that’s not for a long time, but you never know. Here are a few small business owner estate planning tips to help:
Start with a Will and Estate Planning
The first and most important thing you can do is work with an estate planning lawyer. There are many reasons why estate planning is important, but the main reason is to make sure your wishes are carried out.
Several things will probably come into play as you build out your estate plan:
Will – your will is the foundation of an estate plan. It is a great start, but it usually isn’t able to do everything on its own.
Trusts – trusts are great for protecting your financial assets and passing them on to the right people.
Power of Attorney – this document outlines someone who can step in and take the reigns of your finances if you get incapacitated. This is especially important for small business owners because you need someone to keep the ship afloat.
Health Care Directive – this helps people understand what kind of care you want if you have a grave illness, and it will take extreme measures to keep you alive. It also names someone to be able to speak for you.
Create Your Business Succession Plan
As a small business owner, your loss will be a significant hit to the company. Therefore, it’s essential to outline your business succession plan ahead of time.
Your succession plan is crucial because it outlines how your business will succeed when you leave the company. Once created, it should be re-evaluated once a year – just like your estate plan – to make sure it still reflects the best path forward.
Just thinking through your succession plan will help guide decisions around recruiting, promoting, and training within the company. You’ll realize that not everything lasts forever. Hence, it’s a good idea to train your employees to fill critical roles if something happens. This is true for all companies, but especially a small company where each person plays such a pivotal role.
Check Your Insurance
When you own a small business, your life insurance should be high enough to assist your loved ones in resolving any business affairs with those funds. For example, what if the company has been struggling to pay the bills lately but still has a 9 months lease when you pass on. The money received from your life insurance can help pay the lease until it ends, which gives the business and your loved ones time to figure out what to do with the company.
This could be issued with the lease, payroll, paying lenders, you name it. The point is that the business may need to tap into your life insurance funds to help cover costs for a while when you pass.
That’s why it’s essential to make sure you have a solid policy with enough funds to help your loved ones weather the storm.
Keep Records and Let People Know Where They Are
Don’t create a will or estate plan and then not tell anyone where they are! Make sure it’s documented where these things are kept. A great place is with your estate planning lawyer. The key is to ensure your family and business associates have your lawyer’s contact info.
Draft a Buy-Sell Agreement if You are a Co-Owner
The last piece of advice is oriented towards small business owners with partners. A buy-sell agreement is what outlines what will happen if you pass on. For example, it may say that your business partners can purchase your share of the business.
A lot goes into estate planning in general, but it’s especially true if you’re a small business owner. The good news is you don’t have to do this alone! Send us an email or call us at 714-663-8000, and we’ll help walk you through the estate planning process.