Attorneys are often asked, “Should I have a will?” The simple answer is yes. Every adult, regardless of their financial worth, should have a will and estate plan. This is especially true for business owners because, in addition to protecting personal assets, they need to ensure their business assets are provided for upon their death.
If you are a sole proprietor or own a family business, your business is not separate from your personal assets, so you will need a clear plan outlining what you intend for your business and its assets upon your death. If you want the business to end, this should be clearly stated and some provision should be made to wind it down. Your estate plan should include having adequate life insurance so that your family has sufficient funds with which to close the business while they try to sell it. To minimize risk arising from any business activity, funds should support continuing liability insurance for a reasonable period of time after your death. Your will can direct how life insurance proceeds should be utilized. Steps should also be taken to minimize risk from potential tax liability related to your business that your estate or heirs may face.
However, if you desire to transition the business to, for instance, heirs who may be involved, a succession plan is needed to ensure they know where the business stands financially and what steps they’ll need to take. You’ll also want to ensure your business assets are distributed based upon an heir’s level of participation in the business. For example, if you have several children, some of whom are involved in the business and others who are not, consideration should be given to how you want to transition the business to those children who desire to take it over. Would you want children who desire the business to buy out the others? Would you want all children, regardless of their involvement, to have an equal interest? Or, would you leave the business to those children who will be taking it over, and leave assets of equal value to the other children?
For businesses which are co-owned, such as partnerships and limited liability corporations, consider entering into a buy-sell agreement between the partners that establishes a plan for the business upon death. Such an agreement can establish a sale price for the business and your interest in it. Upon your death, your share can be purchased by the other owners. Many times, funding for the purchase comes from life insurance. For this purpose, each owner takes out a life insurance policy naming their partners as beneficiaries, or the business itself can acquire life insurance on each owner. Because you have agreed to the business price, your heirs can rest assured your estate will receive a fair price.
Regardless of your situation, it’s never too early to explore and plan for these options. Doing so ensures your business has a smooth transition upon your death, and will avoid confusion and unnecessary anxiety for your family.