An Entrepreneur’s Guide to Estate Planning
Entrepreneurs have so much to handle every day that thinking about the future that is not next week’s shipment, staff training, or any other business rated matter can be difficult. Business estate planning can help you ensure that your business is handled the way you would want it to. Entrepreneur estate planning can help to protect all that you’ve worked so hard for.
It starts with having a conversation with your lawyer about your wishes and then working together to get your needs met.
Let’s look at 4 things you need to know about entrepreneur estate planning.
Create a Basic Entrepreneur Estate Plan
The first step is to write a will and create a basic estate plan. Without a will, your assets including your business assets will be divided according to state law. Your estate plan should have at bare minimum a will, a power of attorney, and a healthcare directive.
Your business will typically require other elements to be added to an estate plan such as a trust. Working with a lawyer to create your estate plan will make it easy to know which things are necessary and the ones that can be excluded safely.
Consider the Taxes
There are special tax considerations that may apply to your estate depending on the state you live in and where your business is located. Remember that in the time between you writing your will and your death, your company may grow so the taxes that would apply would be based on your business’s current value at that time.
If your business has more than one owner you will need to have an agreement for what happens to your share of the company if your partner services you. Some choose to establish an agreement that states that upon their death the other owners will buy their share of the company.
This is called a buy-sell agreement. It can ensure that your beneficiaries do not become the new owners accidentally. These plans are also sometimes combined with an irrevocable life insurance trust which could provide the funds for the company buyout. Buy-sell agreements can have many different objectives and structures. Consult with a lawyer to figure out which one is best for you and your business.
Things to Consider For Family-Owned Businesses
Family-owned businesses can present a unique set of challenges For example let’s look at the example of a small sporting goods store. If you owned this store and had 3 children who you hope will take over for you. However, only one child is interested in the business. So how do you structure your estate plan?
This is the type a problem a lawyer can help you work through. Maybe your lawyer would suggest an even split with your business assets going the child interested in taking over and your personal assets to the children who do not, or creating some other break down that will seem equitable.
There are also concerns with keeping the business “in the family”, meaning that the spouses of your children will not inherit your child’s share if your child were to die. Careful estate planning is the only way to be certain that it will all play out as desired.
Write a Succession Plan
Creating your succession plan is often the first step towards creating an entrepreneur estate plan. A succession plan is a plan that focuses on identifying employees that would benefit from development to ensure that operations at your business will continue, even after your passing.
A succession plan should directly state who will take over your company upon your death or incapacitation and how the business will function. Succession plans are typically written like business plans. They have many similar elements such as a description of your company, its market, and competitors. Also, it should note the business’ structure and financial evaluations.
Succession planning can prevent the need for litigation down the road and simplifies the process of transition.
With over a decade of experience, Attorney Regine Francois is equipped to help you with to prepare for your plan. She is an estate planning and probate attorney located in Prince George’s County, MD, and serving the surrounding counties. To schedule an appointment, please call 301-358-0377.