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Estate Planning For Business Owners


Do you have concerns about the future of your business? Estate planning for you and your business isn’t something you should ignore. If you’ve worked hard to create and grow your business, the only way to make sure it is taken care of after you’re gone is to think critically about the business’ future. Fortunately, there are several ways to make this process easier. Here, we'll discuss in detail 10 estate planning tips for you as a business owner.


10 Estate Planning Tips For Business Owners

  1. Finalize your decisions about the future.

  2. Organize and update your records.

  3. Speak to all parties who will be impacted by your choices.

  4. Get your insurance in order.

  5. Decide whether you need a Buy-Sell Agreement.

  6. Assess the tax situation for your business.

  7. Create a will.

  8. Set up an estate plan.

  9. Draft a succession plan.

  10. Plan for updates to all your documents.

1. FINALIZE YOUR DECISIONS ABOUT THE FUTURE

Before you draft your estate planning documents, you should take the time to think about your decisions. You’ll have many questions to answer, such as:

  • Who should inherit the business?

  • What if your first choice doesn’t want to continue the business?

  • Are your kids interested in inheriting the family business?

  • Do you need to set up a trust?

  • Where can you find reputable attorneys and financial advisors if you don’t have a team already?

  • How will the business transition after you aren’t at the helm anymore?

These questions may not be easy. But they need answers so you can begin setting up your comprehensive estate plan.


2. ORGANIZE AND UPDATE YOUR RECORDS

If you are the only person that knows where your business records are, the people who take over will have a hard time. Take some time to locate and organize your business files. If you don’t have an easy filing system, fix that now. Some of the important records for you to maintain and arrange for your successors are as follows:

  • Your business plan

  • State-filed documents, such as Articles of Organization or Incorporation

  • Your Operating Agreement

  • Financial records and statements

  • Tax returns

  • Insurance policies


3. SPEAK TO ALL PARTIES WHO WILL BE IMPACTED BY YOUR CHOICES

Plan time to have conversations with all parties involved in your estate plan. Although many people first draft the documents and then tell the affected parties, it’s better to do it the other way around when a business is involved. At this stage, you’ll get an understanding of who may not want to take on the roles you had envisioned for them. You’ll also find out if there are any parties you missed who would be willing to handle more responsibility. Beyond that, you’ll be able to clue your family into your wishes, which is an integral part of all estate planning.


4. GET YOUR INSURANCE IN ORDER

As a business owner, you’ll need to think about how to provide for both your family and your business when you’re gone. Life insurance is a good idea for anyone planning their estate. For business owners, it becomes even more critical, because it could lead to a significant financial payout when your family needs it most. You should also consider purchasing disability insurance, as it can help if an unexpected disability comes up.


Apart from purchasing general life and disability insurance and naming your family as beneficiary, you’ll also want to purchase a different type of life and disability insurance policy for your business. This is called a “key person” policy. With a key person policy, you can name your business as the beneficiary. These policies provide payouts when a “key person” in the company passes away or experiences a disability. This money could be very valuable for your small business.


5. DECIDE WHETHER YOU NEED A BUY-SELL AGREEMENT

If your business has multiple owners, you may need a Buy-Sell Agreement. A Buy-Sell Agreement is a document through which the owners of a business come together and decide what happens in case one of them can no longer participate in the company. Generally, the current owners have a right of first refusal on purchasing any ownership interest that has become available. A Buy-Sell Agreement can be very complicated, so it’s a good idea to get an attorney’s counsel.


6. ASSESS THE TAX SITUATION FOR YOUR BUSINESS

At this stage, you should sit down with an Accountant/CPA to discuss how you can best insulate your family and your business from an unreasonable tax burden. The right team can help set up your plan so taxes are minimized. You may also wish to discuss any long-term savings accounts or special investments you have. These will also have to flow to your family quickly and efficiently when needed.


7. CREATE A WILL

This crucial stage is where the heavy lifting of estate planning begins. After you’ve made your decisions, it’s time to draft your will. A will memorializes the decisions you’ve made for your estate. Without a will, your property would be passed down based on the laws of your state. Not only that, but without a will, your property can get tied up in probate for months on end (if not years!). A will isn’t a document that you should handle alone. An experienced estate planning attorney such as Jake Mason of Mason & Associates Law Firm, who is also board-certified in Estate Planning & Probate, can make sure everything is as you want it to be, as well as counsel you along the way.


8. SET UP AN ESTATE PLAN

Drafting a will is only part of planning for your estate. You must also have a Power of Attorney and a Healthcare Directive. A Power of Attorney gives another party the right to make financial and business decisions for you if you ever become incapacitated. A Healthcare Directive allows you to appoint someone to make decisions about your health if you cannot. Between a will, a Power of Attorney, and Healthcare Directive, you’ll have planned for every possibility and made sure your business and family are taken care of.


9. DRAFT A SUCCESSION PLAN

Although you may have finished plans for the business’ future through your estate planning, you still need to have a succession plan. A succession plan manages the “in-between” moment before your estate plan can be put into action. Your succession plan should detail the leadership roles in your business and how they will change if something happens to you. Include information about who will step up to lead. You should also describe key financial details of the business.


10. PLAN FOR UPDATES TO ALL YOUR DOCUMENTS

Setting up an estate plan is a necessary step to ensure that your business and family are protected. Your estate plan documents, however, aren’t set in stone. You’ll want to periodically review your full estate plan with your attorney, accountants, financial advisors, and any other members of your team. State and federal laws are continually changing. Updates/amendments are very simple and affordable, but extremely vital as your personal or business circumstances may change over time.


CONTACT A BUSINESS PLANNING ATTORNEY

Estate Planning can be overwhelming, especially for business owners. An experienced Estate Planning Attorney can help you protect your business and your family legacy. Attorney Jake Mason, Owner of Mason & Associates Law Firm, is board-certified in Estate Planning & Probate and has years of experience working with business owners on Formations and Incorporations to Succession Planning and Exit Strategies. To discuss the options for your personal and business Estate Planning, contact Mason & Associates Law Firm for a consultation via phone, in-person, or video conference at info@planyourlegacy.com, Gallatin (615) 989-7054, or Nashville (615) 619-2791. Your Legacy Is Our Priority™