If you’re a business owner, planning your business’ future is quite challenging. But, like any other business owners and entrepreneurs out there, nobody wants to imagine a day when you can’t run your business successfully.
With that in mind, estate planning is a critical part of any business. A good way to care for your entire business and grow it successfully is to have a plan. Luckily, there are some ways to simplify the process of estate planning.
Focusing on every phase of your estate planning will make it easy for you to grow its operations without facing some challenges. If you don’t know where to get started, hiring an attorney in San Francisco or wherever you’re situated is always a good idea.
As a business owner, below are some of the tips for estate planning that you should know:
1. Never Neglect Life Insurance
Many businesses don’t have the advantage of liquidity on their side, making things a bit tricky in terms of purchasing out the shares of somebody who has passed. Since it’s typical for business owners to take out some policies that name their partners as their beneficiaries, the capital may come from life insurance.
The advantage for surviving members of the business comes in the form of tax-free proceeds, which may be used to purchase the shares of business owners in case they passed away.
2. Create A Succession Plan
Even if you might have some finished business plans for the future of your business with the help of estate planning, you may still need a succession plan. It handles the in-between moment before the estate plan will be put into action.
When creating a succession plan, it must detail your leadership roles and how they’ll change if in case something bad happens to you. Include some details regarding who would step up to lead. You must also describe your company’s key financial details.
3. Lessen Your Taxes
Estate taxes are crucial for business owners. Unfortunately, if the business owners die, the taxes may spell the end of the business. Since the taxes account for the total value of a business or almost 50%, it’s crucial to include tax reduction in estate planning.
Generally, when business owners pass away, you should pay all the taxes within 9 months. In many cases, paying such taxes might mean having to sell the business because of a lack of liquidity.
4. Draft A Will
Another important estate planning tip you should keep in mind as a business owner is to have a will. This document can help business owners plan the equal and fair distribution of personal assets. Still, it also enables writers or testators of the will to select a business executer, which is the person responsible to continue the business.
There are some reasons concerning how a will can be helpful for a business. For example, if the business owners suffer from a disease or are involved in an accident, this will serve as a crucial guide for the employees and business partners.
Since a will entails various essential aspects of your business, business owners must consult experienced estate planning lawyers. Collaborating with lawyers will guarantee that you won’t skip any crucial factors that should go into your will.
5. Declare Power Of Attorney
Many business owners are aware of this term, hence the majority knows how significant it is and what it means for businesses. Business owners should declare power of attorney to someone they can trust with their business and financial matters.
Since that person will handle all financial and legal affairs of the business when the owner can’t manage the operations, it’s critical to pick the right person. This person will handle payroll, creditor or vendor payments, assets, and your entire company. If a business owner didn’t declare it before they passed away, the court will appoint a guardian.
6. Update Your Estate Plan
Tax laws will change regularly, both at the state and federal level, which may upend your estate plan. Similarly, a child’s marriage, divorce, or the birth of a grandchild or a child may affect your estate planning. Therefore, it’s best to have a lawyer who understands your needs to help you keep up with the transitions throughout the years.
Once you already have an estate plan in place, you should update it regularly to ensure that it reflects the current laws as well as your current wishes for what you like to happen to your company.
7. Have A Buy-Sell Agreement
Even if it’s optional for estate planning, a buy-sell agreement can be a critical part of it, especially if your business has several owners.
A buy-sell agreement specifies who can purchase the owner’s business share, at what price, and under what conditions. It also keeps the business in the hands of the existing owners when the owner dies, retires, becomes disabled, or exits the business.
More often than not, the buy-sell agreement also grants the existing owners first rights to purchase the owner’s business share according to a pre-set valuation formula. Such owners will purchase out the share of the exiting owner either by paying the owner’s heir or the owner itself.
The agreement could also set some rules around when the ex-spouse of the exiting owner lay claim to the business assets as part of the divorce proceeding. A buy-sell agreement can also be structured in many ways, so ensure that you consult the best lawyer around to know which is perfect for your business.
8. Create A Charitable Trust
If you want to take a philanthropic approach to handle your business assets after you passed away, a great option is to consider a charitable trust. Creating one will let you donate all your assets to organizations that support certain interests or passions, like the advancement of education of particular sciences. It’s possible to set up such trusts to benefit not only you but your family as well.
Estate planning can be confusing for most business owners. Still, regardless of how complex it is, you can never deny the fact that it’s essential. Estate planning for businesses allows you to ensure that your business continues as a thriving and successful venture. So, make sure to take note of the above tips for you to create an actionable and solid plan.