Creating an estate plan is important for everyone, especially for business owners, because their life’s work and the continuation of that success hangs in the balance. Luckily, there are solutions for both short-term and long-term absences. These solutions can keep your business running smoothly while also making sure the right people are left in charge.
What Would Happen in the Short Term?
Have you ever thought about what would happen to your business in the event of your short-term absence? What would happen if you were to become incapacitated for some time? Who would collect payment from and service your clients? Who would pay employees or contractors that you do business with?
A properly executed estate plan will answer all of these questions. By naming a trusted relative or associate to step up in your absence, and authorizing them to act on your behalf, you can ensure that your business will not skip a beat. This person will manage the business during your absence and run it as you would until you return.
What Would Happen in the Long Term?
Planning for the time when you step away from your business is crucial. Most business owners have given at least some thought as to whether they would pass their business to their heirs, or sell it when they pass or can no longer operate the business.
However, when it comes to closely held businesses or partnerships another question arises. Are your business partners willing to work with your heirs? Are you willing to work with theirs? We often find that business partners would prefer to take over the business rather than be forced to work with a new partner who may not have the desire or aptitude to pull their weight. Fortunately, these concerns can be alleviated with proper planning.
What Steps Can You Take Today?
The perfect time to plan for these what-ifs is before anything happens. If you have any concerns regarding these scenarios, it’s worth speaking with an attorney to find the best plan for your business’s future. You’ll find that there are a few simple steps that can be taken to ensure a strong future for the business you’ve worked so hard to build.
For short-term problems, namely your brief absence due to incapacity or unavailability, you can grant a trusted person power of attorney. Completing a durable power of attorney will allow a named person to manage your finances in the event that you become incapacitated. This person can make or collect payments on your behalf, enter into contracts, and manage your business’s finances in your absence. While the power of attorney that you create can give your agent as much or as little authority as you choose, it’s important to note that your business formation documents may preclude you from giving this authority to anyone other than your partners. By completing a durable power of attorney for finances ahead of time, you can be certain that your short-term absence will not negatively impact your business.
When thinking long-term, there are a couple of options to choose from that will allow your ideal successor to continue driving your business forward. Two options worth considering are: 1) creating an estate plan that distributes your shares in your business to an heir; and 2) creating a buy-sell agreement that gives someone else, like your partner, the ability to buy your shares of the business.
Passing to the Heirs
Creating an estate plan with a living trust can allow you to pass your business onto the heirs you wish. The main benefit of a living trust is that it bypasses probate. This will allow for a more efficient transfer of your shares to your heirs. A lengthy probate battle could preoccupy your heirs, leading to them spending less time on your business. Creating a trust can streamline this process and let your heirs get right back to work.
If you or your business partners would prefer that the business only be run by those that are running it now rather than an heir, then a buy-sell agreement should be considered. A buy-sell agreement is an agreement that allows the other party to buy your shares in a business in the event that you pass or have to leave. The agreement can take effect before shares of the business are passed to one’s heirs and should specify the terms that trigger the buyer’s ability to buy, and the price they would pay.
The downside to a buy-sell agreement is that it requires the buyer to have the capital to buy your shares of the business. That is why people commonly pair this agreement with a life insurance policy. The way this works is that the two business partners take out a policy on each other, with the benefit amount representing the price they would pay the family of their partner for the partner’s shares. By structuring it this way, you will know that the capital will be available when necessary to buy the business, and that the business will be run by those prepared to operate it.
Any of the options can be effective in properly caring for your business when you are unable to. To determine which course of action is right for you, speak with an experienced estate planning attorney who can walk you through your options.
How Can Rosenblum Law Help?
Everyone’s estate plan is different, as is everyone’s business. Being proactive is the most effective way to care for your business. By implementing your estate plan now, you will have one less thing to worry about, thus allowing you to focus more attention onto your business. Rosenblum Law has an experienced estate planning team that can assist you through every step of this process. We can help walk you through these options while making sure your plan is sound and carefully tailored to your specific needs. Call (888)-572-3701 for a free, no obligation consultation.