Estate Planning and Your Small Business
You’ve worked hard to build your business, and the thought of leaving it to someone else could fill you with terror. However, failing to make plans for your succession could be disastrous. After your death, the business you worked so hard to grow could fall into the wrong hands and end up dissolving before your family can receive any benefit.
At Millhorn Elder Law Planning Group, we work with many small business owners to create an estate plan that protects their business long after they are gone. You should meet with an attorney to discuss how to protect your legacy.
Use a Buy-Sell Agreement for Multiple Owners
You might be only one owner among many of the family business. In this situation, you should have a buy-sell agreement in place. This document will state what happens to an owner’s interest in the business in the event of death.
For example, the remaining owners might agree to redeem the deceased owner’s interest by essentially buying them out. The deceased person’s heirs can then receive the monetary value of the business ownership interest although they do not themselves become owners.
Buy-sell agreements protect the business by preventing someone to ascend to ownership simply by virtue of inheriting business assets. Buy-sell agreements can also anticipate other contingencies, such as a divorce.
Put Your Business in a Trust
If you are the sole owner, you will have greater control of who inherits the business. We often recommend that the business owner not use their will to dispose of the business but create a trust instead.
There are a few reasons we recommend trusts:
- With a trust, you can appoint a trustee who will run the business. You can choose someone who understands the business and will keep it going. If you put the business in your will, then the personal representative and the probate court would be in charge. They might have no idea how to run your type of business and could cause it to fold.
- Courts move slowly, and your business might suffer while it is held up in probate. If you create a trust, then the trustee could sell the business much faster, preserving value.
- You can have greater control of how the trustee manages the business by drafting a detailed trust agreement.
Creating a solid trust involves identifying an appropriate trustee and providing detailed instructions to the trustee about how to manage the assets. While living, you might serve as the trustee, but someone will have to take over at your death. At our firm, we can help you identify an appropriate trustee.
Update Your Estate Plan Frequently
The business environment changes regularly, and small business owners might need to update their estate plan frequently. For example, you might want your children to share equally in your estate. This can be tricky if the value of your business fluctuates regularly. Other business or life contingencies might require an update of your estate plan, so meet with an experienced lawyer to discuss your situation.
Contact Millhorn Elder Law Planning Group
Schedule your free consultation with the Villages estate planning attorneys at the Millhorn Elder Law Planning Group by calling 800-743-8732 or filling out our online contact form. We are experienced creating estate plans involving all types of assets, and we look forward to working with you.