Is estate planning for business owners really necessary? Absolutely! Business owners need to consider sound personal an business estate planning to protect both their family and business if they should suddenly die.
Estate planning for business owners and their families can answer these questions:
- Who will look after my children?
- Will my wife automatically inherit all my assets?
- Does my house get passed down to wife or my children?
- How will my personal and business asset be distributed?
- Who will take over my company if I should pass away?
How do we find an answer to these questions? After all, we will not be around as the leader of our family our business.
Estate Planning for Families
Well, first, every estate plan should have a Last Will and Testament. A will is a document that also instructs who will eventually get your assets. If you die without a will, and the state decides who gets your assets, without regard to your wishes or your children’s needs.
This legal document will also resolve issues like guardianship for your children.
As for distributing your assets you can make a choice between a will or a trust. Wills are easier to create, modify, and change. You may amend your will at any time.
In fact, it’s a good idea to review it periodically and especially when your marital status changes. At the same time, review your beneficiary designations for your 401(k), IRA, pension, and life insurance policies. The reason being is that those accounts will be transferred automatically to your named beneficiaries when you die.
A will is also useful if you have a trust. While, trusts are generally more costly and time-consuming, they allow your beneficiaries to skip the probate process and receive all the assets immediately upon your death.
A trust is a legal mechanism that lets you control how your assets are distributed after you die and it often lets you minimize gift and estate taxes. But you still need a will since most trusts deal only with specific assets such as life insurance or a piece of property, but not the sum total of your holdings.
Even if you have a revocable living trust in which you can put the bulk of your assets, you still need what is called a pour-over will. In addition to letting you name a guardian for your children, a pour-over will ensures that all the assets you intended to put into the trust are put there even if you fail to rename some of them before your death.
Any assets that are not renamed in the trust are considered subject to probate. As a result, if you have not specified in a will who should get those assets, a court may decide to distribute assets to people whom you may not have chosen.
Business owners with large estate also may need more complicated trust arrangements. A common trust used for estate planning is called an Irrevocable Life Insurance Trust. These trusts help to efficiently pay for estate taxes and normally only have one asset, a survivorship life insurance policy.
It is always best to consult with an qualified estate planning attorney to figure out which documents are best for you.
Just remember, without a proper estate plan, your estate will owe more taxes, go through the probate process, which include attorneys, legal fees, and public access to information since probate is a public process.
Estate Planning for Business Owners
Now, have you thought about what happens to your company if you should die?
Your company also needs proper estate planning. You started your small business by committing your money, time, and effort to help it mature and grow into successful company.
However, estate planing for business owners is needed to make sure you have an assigned successor for your business.
It’s important that your company’s succession plan is clearly outlined in these documents, including vital business information such as bank accounts, client contacts, and outstanding debt.
Be sure to provide instructions on how to run the business and even how to sell it, all without your help. This can be accomplished with additional documents like a Key Person Agreement, or Buy-Sell Agreement.
Take your time to make sure your exact wishes are followed. Again, it is advisable to make sure to have all documents executed by a qualifies attorney comfortable with estate planning for business owners.
Finally, please take the time to discuss your estate plan with your family and business partners to make sure that they understand the details of these documents. After all, they are the people who will be dealing with the lawyers after you pass away.