- Every Business Owner Needs an Estate Plan
- October 23, 2014 | Author: Kevin M. Huss
- Law Firm: Smith Haughey Rice & Roegge, P.C. - Muskegon Office
Planning is an important part of making any business successful. However, it is equally important for business owners to make sure that their own personal estate plans are in place and up to date. Often, successful business owners put estate planning on the back burner in order to spend the time and effort necessary to grow their respective businesses. However, overlooking personal estate planning can have severe consequences.
For most business owners, a significant portion of their overall estate is the ownership interest in the business. These business owners generally want to accomplish two related goals in the event of death: making sure their family is provided for and making sure the business continues on. This is especially true when the family’s primary source of income is the business and has to remain so following the death of the business owner. Often, the two alternatives these business owners explore to protect the business are transitioning ownership to the next generation(s) or selling the business for a fair price. Proper estate planning can assist with either of these options.
If a business owner dies without an estate plan in place, the heirs are generally left to pick up the pieces. Without any direction from an estate plan, this could result in a highly successful business, in effect, dying with its former owner, and relatively quickly.
Businesses that are owned by multiple individuals can also benefit from each owner having an estate plan in place. Proper planning can insure that surviving owners have a mechanism to either have the deceased owner’s estate step in as an owner of the business or a mechanism that can be used to buy the deceased owner’s interest from his/her estate. This is especially important for high-value businesses that may not have a sufficient amount of cash on hand to purchase an owner’s interest on short notice.
Regardless of the form of business, business owners generally need to have a combination of estate planning and succession planning documents in place to make sure that the business continues to run effectively following death and to make sure that the heirs of the owner are properly protected. These documents typically include some form of a buy-sell agreement, life insurance, a trust instrument or some combination thereof. Coordination of these corporate documents with individual estate planning documents, such as a revocable living trust, can make for a smooth transition following death or retirement, provide financial security for heirs and potentially reduce taxes.
It is never too early to have an estate plan in place, but often estate planning is overlooked until it is too late. So, in order to begin developing a plan, business owners should take an honest assessment of the business, the potential viability of the business following death, the overall value of the owner’s personal estate, and the owner’s goals and objectives with respect to providing for family after death. With this information, an estate planning attorney can begin to coordinate the estate planning needs of a business owner with any existing life insurance, buy-sell agreement and/or succession plan which might be in place.