Key Estate Planning Considerations for Entrepreneurs
People who own their own businesses often must struggle and make sacrifices to make their businesses thrive. They pour tremendous amounts of energy and effort into creating something that will provide for themselves and their families. However, many business owners get so caught up with the day-to-day demands of operating a business that they forget to make plans for what will happen when they are no longer around to do so. Entrepreneurs should be aware of the unique issues they face when creating estate plans and take action to ensure that their businesses will be passed on according to their wishes.
Business Succession Planning
Estate planning is an important task for everyone, but it is an especially pressing issue for business owners. When a person dies intestate, without making a will, his or her assets pass to the next-of-kin. In most cases, it is a person’s spouse. This means that when a business owner dies without a will, the business will typically go to his or her spouse. If the family had been involved in running the business, this might not be a bad situation. However, in many cases the business owner would rather have the company go to a business partner or someone else knowledgeable about running a business.
Business owners can draft buy-sell agreements to control how ownership is transferred when an owner dies, becomes unable to work or simply wants to leave the business. Additionally, the company should purchase buy-sell insurance to make sure the business will have enough cash to purchase shares when necessary.
Ensuring Family Security
Entrepreneurs can take additional steps to protect their families and their assets after they pass away. One of the most important things business owners can do is to purchase life and disability insurance policies so their families are able to meet expenses in the event that the business owners are no longer bringing in income.
Additionally, business owners can take advantage of estate planning techniques to pass along as many of their assets as possible to their heirs during life. This will reduce their estates and, therefore, the amount of estate taxes their heirs will owe. One such tool that people often use to accomplish this end is a living trust.
Estate planning can also help specify which assets belong to the family and which are business assets. This is important in the event that the business’ creditors try to seek money from family assets to cover business debts after the business owner dies.
Team of Professionals
Effective estate planning requires a team of professionals working together. A business owner should consult with an accountant, financial planner, insurance agent and estate planning attorney to put all of the pieces of his or her estate plan into play. The business owner should also make sure that all of the professionals are in communication with one another so they can work together to meet the business owner’s estate planning objectives.
An important first step for making an estate plan is contacting an experienced estate planning attorney.