Estate planning for entrepreneurs is not complete until it includes a succession plan. Individuals who create successful businesses often find it hard to consider handing over the reins.
Entrepreneurs would not succeed without their ability to focus all of their energies on their business. It is not easy for this type of person to imagine that one day they may want to retire or that the possibility exists that they might become ill, injured or even die. Without an effective estate plan that includes a succession plan, their work, staff and families may be placed in jeopardy.
A recent business.com post, “5 Estate Planning Tips for Entrepreneurs,” lists these important estate planning essentials:
A Will. This is the most basic estate planning document. It lets a person or a small business owner say how his or her assets will be distributed and to whom. A will also allow the person creating the will to name a personal representative or executor to be responsible for managing and disbursing the personal and business assets according to the testator's wishes. If the business is a sole proprietorship, the executor or a trusted family member should be given access to digital assets like online banking, email, and the company website. This should be a separate document from the will because a will is a public document filed in probate court.
Power of Attorney. This designates a person to handle the business affairs, if the owner becomes incapacitated. If you don’t have this, the court will appoint a guardian to manage the affairs—and his or her decisions may not jive with the business owner's wishes. It could also cause conflict with the other parties.
Trusts. A will, again, is a public document and is required to be probated in court. That can cause issues for a small business wanting to protect sensitive information. As a result, a business owner may want to consider a revocable living trust. This trust takes title to property but lets the creator of the trust or the trustees continue managing the assets during his or her lifetime. Because it’s "revocable," it can be modified. A trust can avoid probate, transfer assets to beneficiaries privately and quickly, and allow a business to continue operating.
Buy-Sell Agreement. A buy-sell agreement is critical for partnerships or companies with just a few owners. This document establishes a way of redistributing an owner's interest if he or she dies or becomes disabled. It is also helpful if an owner declares bankruptcy or is going through a divorce. The buy-sell agreement will also detail how to value the business.
Succession Plan. An entrepreneur’s comprehensive estate plan should include a formal, written succession plan, which provides for the seamless transition of the business. A comprehensive succession plan will state how ownership will be transferred, establish rules for hiring, compensating and promoting family members, and detail how disputes will be resolved.
Partners, shareholders and family members will have a huge financial, legal and emotional burden if the entrepreneur fails to create a plan for the future. While everyone needs to have a will and estate planning basics, the entrepreneur who fails to plan puts a lifetime of work at risk. An experienced estate planning attorney will be able to help the entrepreneur create a comprehensive plan that addresses business and personal matters.
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