As the owner of a small business, the security of your assets and your ability to plan for tomorrow are of paramount importance. You may have all of the assets that many people have, namely a house, car, or savings accounts, but you also have a business. A small business can be a valuable asset, both financially and emotionally.

To ensure that your hard work and dedication was not in vain, you need to have an estate plan in place that properly plans for your business’s future. By executing a thorough plan that addresses both your personal needs and the needs of your business, you can find peace of mind knowing that your family and your business will be taken care of if you are unable to do so. The best place to start is by creating your business’s succession plan. Once a succession plan is in place, you will be able to make a clear and accurate estate plan that addresses your needs.

Plan for 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 a period of 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 address 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. It is worth noting that this should be handled between yourself and your business partner before execution of the documents. Make sure that your articles of governance and business partners would allow your named person to make these important decisions in your absence.

Plan for 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.

Succession Plans

While succession plans are not a part of estate planning per se, it is important to have this part of your plan mapped out to ensure an effective estate planning process. For example, if you and your business partner already have a buy-sell agreement in place, you cannot necessarily distribute your shares in the business to your children through your will. Those shares may already be ear-marked for your business partner. Your buy-sell agreement may state that any transfer of your shares to a party not named in the buy-sell agreement would nullify the transfer of those shares.

Now your partner could have the right to refuse these shares. It depends on the language of the buy-sell agreement. The agreement can determine your partner’s right to buy your shares, provide stability for your company, establish an acceptable purchase price, help you and your partner maintain ownership of the company, as well as many other things. The buy-sell agreement is between you and your business partners. The main purpose is that it will tell you all what the plan is in the event one of you dies but you should be in agreement with your partner(s) over what exactly should be stated in the buy-sell agreement.

Clarity and communication are key. You should be apprised of your succession plan to make your estate planning experience seamless and effective.

A buy-sell agreement is an agreement between business partners where they agree to buy the others shares in the event one needs to step down or passes away. Oftentimes partners who execute buy-sell agreements for the other’s shares will also take out a life insurance policy on the other. The life insurance policy can equal the amount of money that the partner’s shares are worth. By doing this, each partner can be certain that in the event their partner passes, they will have the cash available to buy the shares per the buy-sell agreement.

On the other hand, maybe you and your business partner are in agreement that you both will distribute your shares in the business to your children. In this case, it would be appropriate to include your shares in a will or a trust for your children to inherit. By having your succession plan laid out, you can create the most effective estate plan possible because your estate plan will then be able to properly account for where your business will go.

How to Incorporate Your Needs into Your Estate Plan

A comprehensive estate plan should both direct your assets when you pass, and also care for you during your lifetime. This can be achieved through creating documents such as a living trust or various powers of attorney. A well-drafted estate plan, in conjunction with a solid succession plan, will form a strong safety net that will keep your business going long after you leave the helm. Let’s consider how certain aspects of an estate plan are beneficial to small business owners.

Asset Distribution

Asset distribution may be the first thing that comes to mind when you think of estate planning, and for good reason. People have long been creating wills and trusts to allow their heirs to inherit their assets when they die. Few assets are as precious as the business you have grown from ground up. Making sure that you leave your business to the right people is crucial. Do not let your life’s work go to waste.

The most common ways to distribute your assets in an estate plan is through a last will and testament or a living trust. Either of these routes can be effective in getting your assets to the heirs you intend, but for small business owners, a living trust is likely the better option. The major difference between a living trust and a will is that the trust does not have to pass through probate. This allows for a more efficient and quick transfer of your assets. This will help your heirs to inherit their shares of the business and quickly get back to work.

Incapacity

Creating durable powers of attorney is essential for small business owners. Durable powers of attorney are the most effective and precise way for you to authorize another person to act in your place with regards to your finances and healthcare. Durable powers of attorney allow a named person to act with regard to your healthcare and/or finances, even in the event that you are incapacitated.

The reason why this is so important for small business owners is because, without someone to make decisions for how to run your business and manage the business’s finances, what would happen to your business? Failing to have someone in place who can step in and make payments, collect payments, or manage your business’s bank account can have drastic consequences.

Durable powers of attorney can leave you confident that there is a plan in place for keeping your business afloat in the event you have to take a leave of absence. Again, you will want to keep your business partner apprised of your decisions and make sure your decisions align with the company bylaws and your partner’s wishes. You will be able to come back with your business running as smoothly as before. Without durable powers of attorney, you could otherwise return to a business in shambles.

How Can Rosenblum Law Help?

Rosenblum Law can help with these what-ifs. A small business is a precious asset. You have put immense amounts of time and hard work into building your business into something you’re proud of. It would not be fair for you to lose all of your progress because of some unexpected health issue or short absence. Luckily, a well-thought-out estate plan can help you cover all of your bases.

Whether it is a legally-sound trust that will distribute your shares of your business to a trusted relative or naming a power of attorney who can keep your business afloat in your absence, your estate plan can address a lot of uncertainties. The perfect time to enact your estate plan is before anything happens. This will allow you to worry about one less thing and focus entirely on your business’s success. For a free, no obligation consultation, call us at 888-235-9021.