If you dream of one day retiring from your
business, selling it, or leaving your company to your family, there are
essential planning steps to take care of today. Perhaps surprisingly, properly
planning for what would happen to your business upon your death or incapacity
is one of the most important things you can do for your company’s growth and
success, now and in the future. And, it
will leave your heirs, clients or customers, and team with a valuable asset
when you are gone.
By structuring your business affairs with the
end in mind, you will naturally make better choices for everything from entity
type to hiring and training to pricing and delivery of your services and
products.
Using a few basic estate planning strategies
to make sure your business survives your incapacity or death can also set your
business up for success from the start. Although you should consult with us to
take you through our unique planning process and determine the specific
planning vehicles that are right for your particular business and family
situation, the following estate planning tools are essential for nearly all
business owners.
01 - Living Trust
Putting your company in a customized and
thoughtfully prepared Revocable Living Trust is one of the best ways to ensure
your business’s continued success upon your eventual death or in the event of
your incapacity, as long as that Trust is updated over time, and your business
assets are correctly titled in the name of your Trust.
A living Trust is an agreement you make with a Trustee to hold title to the
shares or membership interests of your business. A Trust agreement is then used to document
what will happen to your business when you can no longer run it yourself due to
incapacity or death.
Unlike assets transferred at your death with a
Will, assets properly held by the Trust
agreement do not go through the court process of probate. Instead, those assets
are promptly transferred to the person, or persons, of your choice in the event
of your death or incapacity. In this way, a Trust allows for the smooth
transition of control of your company, without the time, expense, and potential
conflict associated with probate or, in the event of your incapacity before
death, a guardianship or conservatorship.
Using a Trust agreement, you choose the
individual(s) you want to run your company in your absence, whether that
absence is permanent or merely temporary. Plus, Trusts are not open to the
public, so your company’s affairs and its assets would remain private, and
transfer of ownership can occur in your lawyer’s office, not a courtroom.
02 - Buy-Sell Agreement
If you share ownership of your business with
one or more other people, you’ll want to establish a buy-sell agreement. A
buy-sell agreement ensures that upon certain conditions—such as your death or
permanent incapacity—the other owners can purchase your business shares or
stipulate that your shares will pass to your heirs.
An adequately prepared buy-sell agreement can
prevent your family members from getting stuck owning a business they don’t
want and can’t sell. And it also protects your surviving partners from being
forced to deal with new owners they never planned on. The key to ensuring a
buy-sell agreement works is to make sure it’s funded, usually with life
insurance, and that it’s customized to meet the needs of your unique
partnership.
One-size fits all buy-sell agreements,
sometimes provided by life insurance professionals, are insufficient to
adequately protect your family's interest in the event of your death. Instead,
your buy-sell agreement should be customized specifically for you, your business
partner or partners, and your respective families' needs.
03 - Life Insurance
Unless your business generates significant
revenue—and will continue to do so upon your death—that income might not be
enough to support the ongoing operation after your death and financially
provide for your family. By purchasing and properly structuring your life
insurance, you can offer your family, team, and clients a financial safety net.
In contrast, your loved ones finalize your affairs, and your successor assumes
company control.
If your business has multiple owners, you can
pair life insurance policies on each partner with your buy-sell agreement. By
doing so, your remaining partners can buy out your shares at a previously
agreed-upon price, and the life insurance can help pay for the buyout without
leaving the business bankrupt.
04 - Succession Planning
If you hope to pass control of your company to
a loved one or team member, you’ll need to create a comprehensive business
succession plan to ensure the company doesn’t fall apart when you die. Beyond
merely naming your successor, a proper succession provides stability and
security by allowing you to lay out explicit instructions for how the company
should be run once you are no longer around.
From specifying how ownership should be
transferred and providing rules for the compensation of partners and team
members to establishing dispute resolution procedures, an effective succession
plan can provide the new owner with a detailed roadmap for your company’s
continued success and growth.
Don’t Put Your Business &
Family At Risk
Estate planning is every bit—if not
more—essential to your company’s (and family’s) continued survival and success
as any other issue facing your business. If you’ve yet to put your estate plan in
place, consult with us today to help you take care of this vital
responsibility.
And even if you have an existing plan, you
should have us review it to ensure you’ve covered all of your bases and that
your plan has been appropriately updated. We have a 50-point assessment to look
at your plan, which needs to be updated to consider changes in your life,
assets, and the law. These actions will not only help shield your company and
family from unforeseen tragedy but also give you the peace of mind needed to
take your business to the next level. Schedule
your appointment today to get your planning handled.
This
article is a service of Ganvir Law, Personal Family Lawyer™. We offer a
complete spectrum of legal services for businesses and can help you make the
wisest choices on how to deal with your business throughout life and in the
event of your death. We also offer a Business Strategy Session for an ongoing
business, which includes a review of all the legal, financial, and tax systems
you need for your business. Call us today to schedule.
The content is sourced from Personal Family Lawyer® for use by
Personal Family Lawyer firms, a source believed to be providing accurate
information. This material was created for educational and informational
purposes only and is not intended as ERISA, tax, legal, or investment advice.
If you are seeking legal advice specific to your needs, such advice services
must be obtained on your own separate from this educational material.