Writing a Will and making estate plans can be overwhelming and difficult for the average person. If you own a business, you have a few additional factors to consider, as your estate planning strategy should document what’s going to happen to your business after you die.
Why does estate planning matter for business owners?
If a business owner dies and there’s no estate plan in place, your surviving family and business partner(s) are left without direction for how to carry out your wishes for your business. Creating an estate plan ensures that your business matters are handled according to your wishes.
While it’s best to meet with an experienced attorney who can help execute your estate planning strategy, there are some things you can start considering before your meeting.
Estate planning for business owners: Questions to ask
Here are some important questions to ask yourself when deciding what happens to your business when you pass:
1. Who would take over my business if I died or became incapacitated tomorrow?
When it comes to deciding who you want to take over your business, you’ll want to create a succession plan. The purpose of this plan is to document your wishes for your business after you are no longer with the company.
While many business owners create a succession plan for their retirement, it can also help you in thinking about your estate plans – i.e., what happens to the business if you suddenly died or became incapacitated.
Your succession plan should include the following:
- An outline of the financial state of the business, including profits, assets, and the current valuation.
- The proposed organizational structure of the business.
- Potential training opportunities, promotions, and compensation changes for key staff members.
2. Would I want the business to continue, or have my partners sell it?
This is especially important if your business has multiple owners. If that’s the case, then a buy-sell agreement — which specifies who can buy an owner’s share of the business, under what conditions, and at what price — should be a key component of your estate plan.
3. How can I minimize my business’s tax burden?
Depending on the value of your business at the time of your death, your estate may owe federal taxes. While most small businesses will not be subject to the “death tax,” it’s wise to discuss your business assets with a financial advisor and/or an attorney to determine the best ways to plan for tax efficiencies.
4. Do I have a life insurance policy?
It’s common business practice for each business partner to take out a life insurance policy that names the other owner(s) as the beneficiaries. Doing so gives the surviving business owners tax-free proceeds to buy the deceased partner’s portion of the business.
5. Are all my business records organized and accessible to my chosen successor?
While creating an estate plan for your business is important, it’s also critical that your business records — including your estate plan, business plan, succession plan, and applicable insurance policies — are organized and accessible to your business partner(s) and your family.
Drafting a Will as a business owner? Contact an experienced estate planning lawyer for help.
Once you’ve answered these questions, an experienced estate planning attorney can help you document and communicate your wishes for your business. The Law Office of Patricia E. Tichenor, P.L.L.C. has assisted Northern Virginia business owners and families with their estate planning needs for more than 15 years. Schedule your free consultation with us today.