You already know that owning a business is both rewarding and challenging. But owning your own business also presents unique challenges when it comes to estate planning. It’s important to keep that in mind so that you can create a plan that protects both your loved ones and your business.
Every estate plan includes the following components:
- Incapacity Safeguards – Preserve Decision Making
- Asset Protection – Reasonable measures to protect assets against foreseeable risks
- Disposition of Property – Pass on assets in estate to whom, when, and in the manner desired
- Wealth Preservation – Strategies to reduce taxes, costs and fees
- Beneficiary Protection – Provisions for protection of beneficiaries’ inherited assets
- Legacy Goals – What impact will you have? How will you be remembered?
A business owner will have additional things to consider when creating their estate plan:
- What do you want to happen to the business? Your estate plan is going to look very different if you want to pass the business on to your children than if you want to sell it and leave them the proceeds.
- What exactly are your business interests? How those interests are classified (for example, “business property” for a sole proprietorship or “corporate stock” for a corporation) makes a big difference. You’ll have different estate planning options for different types of interests.
- Is your estate plan consistent with your business plan? There can be major problems if the two plans don’t match. Take an example: you won’t be able to leave your stock to your children if a buy-sell agreement gives other shareholders the right to buy your shares.
- Do you have life insurance? Many business assets aren’t liquid (i.e., easily converted to cash). A life insurance policy that names the business as beneficiary can provide much needed capital to keep the business going or allow other partners to buy out your share.
Just like your family and friends, your business is important to you. Ultimately, that’s what estate planning is about—protecting what matters most to you. Make sure your estate plan protects both your loved ones and your business.