If you’re like most small business owners, you never stop working. Nights? Weekends? Vacations? Those are just excuses to work in a different setting. After all, running your own business is a 365 day a year job unless it’s this year, when it’s a 366 day a year job.
Of course, you have to step away from the job now and again. Sure, you might be frantically checking your Blackberry at the pool, but you’ve at least tried your hand at relaxing. And with it that hard to take a little breather, the question becomes: “If leaving for a couple days is tough, what happens when you’re no longer around to run your business?”
Just like you need an estate plan to protect your family, you also need an estate plan to protect your business.
There are different strategies to do this, depending on the way your business is formed. Sole Proprietorships are different than Partnerships; LLCs are different than S-Corporations.
Generally, however, you can break it down like this: whether you’re the only owner of the business or whether you have partners. We’ll look at businesses with co-owners first, followed by sole proprietorships and family businesses. Then we’ll look at how Trusts can help you avoid the probate process when transferring your business assets.
Businesses with Multiple Owners
The most important document you and your co-owners can have is a Buy-Sell Agreement. A Buy-Sell Agreement is sometimes referred to as a “business prenup” or a “business will” in that it spells out what will happen should one owner want to leave (a business divorce, if you will) or passes away.
Thankfully, Buy-Sell Agreements are fairly flexible. You can set them up so your co-owners can buy your shares in the business or set up an heir that all the owners agree on. Perhaps you have a child fully capable of stepping in. If your co-owners agree, his name can be included in the Buy-Sell.
Often times, co-owners will each have life insurance policies which take care of some of the costs. If you name your co-owners (in addition to your family) as beneficiaries, that liquid cash they receive can help with death taxes and the complicated matters associated with ownership transfer.
Businesses with Just One Owner
If you have a sole proprietorship or own a family business, you realize that the business runs because you run the business. Without your stewardship, it crumbles. So how do you make sure it continues after you’re gone?
One way is delegating a successor. In many states, this can be done in your Will, and you want to make certain that your successor, whether that’s a family member or close friend, understands you’re passing the business to them when you’re gone. Get a good estate planning attorney for this. You’re great at running your business, but distributing assets or your business as a whole to an heir or successor is fraught with complications. Consulting a professional will save everyone a massive headache.
Using a Trust
For either sole owners or co-owners, a Trust can be the best way to keep your business going after you’re gone. Trusts don’t go through the probate process, and, since that process can be costly and lengthy, putting your business assets in a trust is a great way to keep it running smoothly through what will be a difficult time for your family.
Also, Trusts can be set up activate before you pass away. You can start transferring ownership early, spell out your wishes in case you’re incapacitated, and avoid some of the estate taxes that can make asset transfer onerous for your heirs. Trusts are generally more complicated than wills though. You have to be much more specific about which particular assets you’re transferring, and it’s recommended you set up a Trust with the help of a seasoned Estate Planning Lawyer.
No matter if you own your business yourself or with partners, you’ll also want to speak with an accountant. The IRS has tax breaks in sections 6166 and 303 that help with death and estate taxes, taxes which can be ruinous to the continued life and success of your business.
Remember: your estate plan isn’t just for you and your family. It’s to protect what you’ve built during your life.
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