Most business owners are so busy running their businesses that they lose sight of the importance of having proper estate planning in place. Personal estate planning coupled with a well-thought out business succession plan is a necessity to prevent chaos from occurring in the event of the business owner’s death or incapacity.
Here are three suggestions for small business owners from experienced estate planning attorneys:
1. Business Succession Planning
When multiple owners are involved a solid buy-sell agreement needs to be in place. These agreements give clear steps of transition and transfer of ownership when one of the owners passes away. They also place restrictions on transferring ownership. Most commonly, these buy-sell agreements allow the surviving owners the ability to pay off the decedent’s beneficiaries in exchange for all the decedent’s share of the company. This prevents a lot of headaches for the remaining owners as well as the decedent’s family. It eliminates the worry of having new owners who have no idea how to run the company and it assures the heirs of proper payment for the decedent’s shares.
2. Life Insurance
In order to have liquid assets available to pay the decedent’s heirs, the company should make sure it has adequate life insurance policies on all of the owners. Without life insurance, the surviving shareholders will have to find other ways to pay, whether from working capital or a business loan.
3. Estate Planning with a Revocable Trust
We often advise small business owners to include a revocable trust in their estate plan. The revocable trust should be funded with the business interests and will state how those interests should be distributed in the event of death.
A trust also avoids probate, which typically causes unnecessary delays and expense to the beneficiaries. For the small business owner, probate also stalls the steady business functions, which can be avoided with a trust in place.
For more information on how to protect your small business interests through proper estate planning and business succession planning or to draft a buy-sell agreement for your business interests, please contact Stouffer Legal at 443-470-3599 in the Greater Baltimore area.