Preparing your company for your incapacity or death is vital to the survival of the enterprise.
Without a plan in place your customers, employees, vendors and even your family can be negatively affected and the future of the business you worked so hard to build will be jeopardized. For this reason, proactive financial planning — including your business and your estate plan — is key. Below are some tips on how to protect your company and keep the business on track in your absence.
Preparing for the Unexpected
It’s easy as a small business owner to get caught up in the day-to-day tasks that keep your company on track without stepping back to look at the big picture and long-term planning. You may also be young and healthy and the legacy of your business seems far off. The truth is that anything can happen to any of us at any moment. Even severe incapacitation (such as an automobile accident) could cause your business to plummet without the right plan in place and adequate insurance.
Execute the Proper Business Documents
If your company has several owners, a buy-sell agreement is necessary. This contract will outline the agreed upon plan for the business should an owner become incapacitated or die. Provisions in the buy-sell agreement will include:
- how the sale price for the business and an owner’s interest are determined,
- whether the remaining owners will have the option to buy the incapacitated or deceased member’s interest, and
- whether certain individuals can be blocked from participating in the business.
Execute the Proper Estate Planning Documents
A properly executed will or trust will allow you to state how you would like your assets to be transferred and who will receive these assets at your death. But this is not just true for your personal wealth and family affects. A will or a trust also lets you identify who will take charge of the business assets and manage their disbursement according to your wishes.
Although a will can be used to pass assets at death, creating and properly funding a trust allows any assets owned by the trust to bypass the probate process. This makes distribution of assets to heirs much faster, more private, and possibly less expensive by reducing the legal fees and estate taxes your heirs will owe.
Additionally, a trust can help your loved ones manage your trust assets if you become incapacitated. While you are alive and well, you typically act as the trustee of the trust, so you can manage your business and assets with little change from the way you do now. But unlike a will, a trust allows your successor trustee to step in to manage things if you become incapacitated. This process avoids court involvement, allows for a smooth transition of trust management (which can be very important if your business is an asset of your trust), and proper continuing care for you in your time of need. Although having a will can be a great way to start, most business owners are much better off with a trust-based estate plan.
Purchase Additional Insurance
Whether you own the business by yourself or are a co-owner, it is important to have separate term life insurance and a disability policy that names your spouse and children as beneficiaries. The money from these policies will help avoid financial hardship while the buyout procedures of a buy-sell agreement are being carried out.
Contact an Estate Planning Attorney
Having a plan for your business in the event you are unable to continue managing the company is essential to keeping the company going. An experienced estate attorney can explain the many options you have to protect your enterprise so that you can focus on what you do best — running your company.