There are many different tools that people can use when estate planning, and many adults try to keep this process as simple as possible. They use a will to arrange for the distribution of their property and perhaps add living documents like powers of attorney to protect their interests in the event of future incapacity.
However, those in more complex situations may need more robust estate plans to maintain control over their legacy and maximize the protection for their family members. A business owner will require different estate planning tools than someone with only basic personal property to bequeath to others when they die, for example. There are different issues for people to address and, therefore, different tools that they’ll need to use when estate planning as a business owner. The following considerations will likely impact estate planning when someone owns a business.
The value of the company
Businesses can be worth more than real estate or any other assets owned by an individual, which may make them a hotly-contested asset during probate. A business may also end up at risk of liquidation because of creditor claims. It could also potentially push the stain over the value threshold at which estate taxes will apply. Given the value the business may add to the estate, a trust may be a good solution for facilitating the transfer of one’s ownership interest to the next generation. Trusts are a popular choice because they give someone control over what happens with the business and its management even after they die.
The management of the company
It is common for someone to want a different family member to run the business than to inherit it. In fact, they may not even want their family members operating the company at all. Nepotism could spell the end of a previously successful organization. Business owners may need to integrate a session plan into their estate plan or into their business plan so that there will be a smooth transition of authority to the party who will take over business operations after they can no longer work.
Understanding the unique issues that business owners need to address during the estate planning process can help them protect the company that they have worked so hard to develop.