When you’re a small business owner, securing your legacy for the future is important. Estate planning is essential. It’s the best way for any entrepreneur who wants to protect their business, their family and their personal assets – but estate planning sometimes becomes an afterthought amidst the day-to-day hurdles of a small enterprise’s operational processes.
However, estate planning is more than just drafting a will – especially for small business owners. It’s about looking ahead and taking steps so that your business can survive (and even thrive) even in your absence. Without a solid estate plan, your incapacitation or death can lead to operational disruptions, disputes among your heirs and worse.
What are some key estate planning considerations for business owners?
Every situation is unique, but here are some of the most common issues that business owners need to address when working through their estate plan:
- Business succession planning: You need to decide who takes over when you’re incapacitated or die, whether this is a family member, an external buyer or a trusted employee. A clear succession plan is an outline for transferring ownership and operational duties and usually includes a buy-sell agreement between partners to ensure continuity in the case of someone’s death, disability or retirement.
- Asset protection planning: Good estate planning for business owners also focuses on asset protection. Even sole proprietors should consider incorporating or creating a limited liability company (LLC) to limit their personal liability. Living trusts can also be used to shield your business and assets from the probate process, which will make it easier for your heirs to take ownership – and life insurance can provide financial stability for your loved ones and your business.
- Tax minimization strategies: California doesn’t have a state estate tax, but federal estate taxes can still take a bite out of larger estates. Advance planning and strategic gifting – or the creation of a family limited partnership – can reduce your taxable assets and make sure that your heirs receive the maximum possible.
- Crisis planning: What happens if you’re incapacitated prior to your death? A sudden illness or accident can leave your business without anybody in control – unless you have the appropriate powers of attorney in place.
When you own a business, delaying your estate planning can lead to unintended consequences that put your family’s security, your employees’ security and everything you’ve created in danger. Taking action today can give yourself and your loved ones peace of mind that’s invaluable.