With your business being one of the most valuable assets within your estate, it’s never too early to start considering what will happen to it after you are gone. Yet, nearly one-third of business owners have no estate plan, and many of those who have one don’t keep it updated as the business evolves.
Regardless of which direction you’re leaning toward, you must answer several critical questions and develop a tangible plan for your company, whether it's a brick-and-mortar or digital business. Here are a few questions for business owners to consider while estate planning:
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1. Would you like to sell the business or continue its operations?
As part of estate planning, you first need to decide what will happen to the actual business. If you are a sole proprietor, for instance, you may not have a business partner who can or will continue business operations. In other cases, there may be a qualified individual - like a family member or friend - who is willing to keep the business going on your behalf. Conversely, you may prefer to sell the business upon your death or incapacitation and create a plan to distribute the assets.
2. Do you need a buy-sell agreement?
This is an especially important consideration for businesses with multiple owners. Buy-sell agreements provide guidance for deciding what happens to your share of the business if you pass on and no longer have control over it. You want to put into writing who can buy into the business or how much your share can or should be sold for, which will eliminate confusion and provide continuity when you are no longer around.
3. What’s your plan for minimizing taxes?
Many people do not give estate taxes a second thought, but when you can be taxed 50 percent or more of the business’ total value, that is an important consideration. While you are estate planning, consider which IRS tax breaks—including Section 303 and Section 6166—or other options—such as holding your business shares in a charitable trust—could protect your business from such a large financial setback.
4. Have you outlined a basic succession plan?
While estate planning isn’t always pleasant, it’s crucial to ensure the business continues running as best as possible in your absence, and without detrimentally affecting the employees whose welfare depends upon it. You should develop a succession plan, which specifies which person(s) will take over the business in your place, so the systematic transfer can occur without complication, and ensuring they understand what responsibilities they will assume.
5. Who will be your designated power of attorney?
Declaring “power of attorney” gives you control over which trusted individual will handle legal affairs for the business, including the management of creditor/vendor payments, financial assets, payroll, and more. Without designating a party to assume that role, the business can experience adverse disruptions and the court may appoint a guardian for the estate who may not work for its best interest.
Take Control of the Future
Don’t wait to consider estate planning for your business until it is too late and you no longer have the capacity to do so. Consider these and other questions, and make decisions to protect your business as a valuable asset. In this way, you can ensure it continues to be operated and managed according to your wishes well into the future.