Regardless of the income your business generates, your age, or the number of employees, a business estate plan can help. One thing business owners need to know is a business estate plan can help ensure your business remains intact if something happens to you.
Business owners need to know that business estate planning is something that every business owner should consider with the help of professionals. Businesses generally are illiquid, which can create problems for heirs or business partners if the business transfers to probate. When a business owner dies, liquidation must occur, which can be difficult without an estate plan. Here is why you should consider an estate plan:
- To help protect the wealth you’ve created.
- To help ensure the business continues.
- Assist in managing estate and gift taxes.
- To protect your employees, business partners, and heirs.
What happens if you don’t have a business estate plan?
According to state laws, the business assets will transfer in probate if a business owner dies without a will or an estate plan. The transfer may result in tax consequences depending on the estate’s value. Once the transfer occurs, the business becomes part of the deceased’s estate. Here are other things that may result from not having a business estate plan:
- The state assumes the responsibility of the business as part of your estate.
- Your employees may lose their livelihood
- Your business partners may be impacted
- Legal expenses that were avoidable will accumulate
- Your heirs have to wait to receive their inheritance
A will and life insurance are excellent places to start depending on your financial situation and the business’s financial condition. But for more complex business situations, a business estate plan should include a will, life insurance, disability insurance, a business succession plan, a trust, and more!
Business owners need to know that creating a business estate plan should involve your legal, tax, insurance, and financial professionals. This team can help ensure the transition of your business goes as you intend. Here is what your professional team may recommend, depending on your situation:
Purchasing life insurance
Life insurance provides a death benefit for purchasing your share of the business by other partners to compensate your heirs. Life insurance can satisfy business liabilities or offer financial resources to keep the company intact as it transitions from your ownership to someone else.
Purchasing disability insurance
Disability insurance provides a monthly benefit to the owner based on a percentage of their monthly income.
Drafting a business succession plan
A succession plan is a document that describes how the business will transition to partners or family members or sells to new owners. The plan also outlines the operations and management structure during the transition period after the owner dies.
Developing a living trust
This legal document provides directives for your assets and names either a legal entity or person as the Trustee. This document helps ensure that regardless of what happens to you, the business and assets are protected and end up with whom you intended.
Final thing Business Owners Need to Know; Appointing a Financial Power of Attorney
This individual will handle your business’s finances if you’re unable and may help manage personal finances. They oversee the transition of your business as your estate plan dictates.
As a financial professional that works with many business owners, I can help you prepare your business to continue or liquidate, depending on your wishes, to help ensure your assets pass quickly to your heirs. Contact my office for an initial conversation about your business so we can determine the next steps for developing your business estate plan.
SWG 2853986-0423e The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.
At Professional Planning Services whether you are planning on growing your retirement assets or protecting them for your family, our team will take the time to get to know you to help ensure that you’re equipped with a plan that’s tailored to your unique situation. With PPS, you get the benefit of veteran advisors and technology working for you. It’s the best of both worlds. Contact us today.