Entrepreneurs are dynamic and hard charging types, typically focused on how to take their businesses to the next level.
The one thing they are unlikely to be thinking about is what will happen if they’re no longer at the helm. While your clients may have a estate plan to ensure that their families are taken care of, what about a plan for the business? Without effective planning, a lifetime of hard work could be undone in an instant.
As with an estate plan, a will is a critical document. Along with personal assets, a will can name a representative or executor to manage and disburse business assets as well. Especially in the case of a business that is a sole proprietorship, a will should specify who will be given access to digital assets such as online bank accounts, email accounts and social media sites.
A durable power of attorney is another critical document, as it will name an individual to handle business matters if the entrepreneur becomes incapacitated. In such an unfortunate event, someone should be designated to manage business assets, access accounts, pay vendors, creditors and payroll and keep the business functioning.
Wills are public documents and must be probated in court. For a small business with a need to protect sensitive information, this could be undesirable. The complexities and costs of probate can also be disruptive. A revocable living trust could be one solution. The trust would take title to the property while allowing the creator to manage the assets during his or her lifetime. Since the trust is revocable, the trust can be modified to allow for business demands. A designated individual can also manage the trust if the creator becomes incapactitated or dies.
In the case of a business with a small number of owners, a buy-sell agreement is necessary. Should one owner die or become disabled, the document will establish a mechanism to redistribute the owner’s interest. The agreement could also be beneficial in the event of a bankruptcy or divorce. The agreement will spell out how transfers are to be made and the valuation method to be used. Each owner should also have a life insurance policy naming the others as beneficiaries in order to fund the acquisition of the deceased partner’s share in the business.
Finally, a succession plan is necessary to ensure the seamless transition of the business. The plan should name the new owners and identify the key players who will assume executive functions and keep the business running. A well-crafted success plan will ensure a smooth transfer of ownership, set guidelines for compensating and dealing with family members, and offer a framework for managing and settling disputes.
For more information, please read:
5 Estate Planning Tips for Entrepreneurs | Business.com