What is one item on your to-do list that tends to get the “I’ll do it later” treatment? For many it is getting their affairs in order by getting an estate plan in place. It’s easy to put off estate planning for another year or to think about it later because the majority of Americans do not want to think about their potential incapacity or death. However, as the global pandemic has taught us, death can come at any time and does not discriminate for age or preparedness.
Even though estate planning has traditionally been considered a tool for the wealthy or aged, in fact it is a tool for every demographic. It is a tool that many business owners overlook, yet it should be at the forefront of their mind while planning for their business. By having a proper estate plan in place, there are a few major issues the company and family are more likely to avoid upon the business owner’s incapacity or death.
Typically, when asked what constitutes an estate plan, most individuals think it means a will. Actually, there are other important documents and plans that need to be addressed. If an estate plan only includes a will, all assets, including the business, must go through probate which is a public, timely, and expensive process. This process could interrupt the business’s operations and prevent the family from accessing business assets and accounts in a timely fashion. The business is more likely to suffer and face hardships that could ultimately cause the business to fail.
In sharp contrast, with a proper estate plan, the ownership of the business can be placed in a trust, which avoids probate, and may be immediately administered by a successor trustee to the grantor upon the death of the grantor. This results in a smoother transition of the business’s ownership to keep the legacy alive. In the event of incapacity, the named Trustee would be able to operate and run the business. On the other hand, if you rely only on a will, or don’t have any estate plan at all, without legally designating someone to manage the business in the event of incapacity, a court may step in and choose a fiduciary to operate the business. Not only is the process to assign a fiduciary potentially long and costly, it leaves the business open to conflict between the appointed fiduciary, family members, and those working for the business.
Another reason for having a comprehensive estate plan for business owners is to create a succession plan to address situations where there is a death, incapacity, or exiting of the business owners and/or key individuals. Succession plans allow business owners to outline a detailed plan for running the business in order to aid and guide the successor and to prevent the business from failing prematurely after death or incapacity.
In cases where there are multiple owners, creating a buy-sell agreement outlines what shall occur with respect to their ownership share in the business in the event of death, incapacity, or leaving the business, thereby avoiding conflicts that could ultimately cause the business to fail.
The best thing to do is to plan ahead now. Get an estate plan in place and takes care of your business and legacy. Having a plan for your family and business will bring peace of mind, especially knowing everything you have worked hard for will be taken care of upon death or incapacity.