When you run a business, it can seem almost impossible to find time to make an estate plan. However, when you stop to think about why you started the business, and why you spend night and day working on it, you will quickly realize it is worth a few minutes of your time to think about what will happen to your business if you become disabled or die suddenly.This is a basic checklist of some of the estate planning issues small business owners should consider:1. Is your partner or family dependent on the income from your business? If so, do you have a business succession plan that will keep the business operating upon your disability or death?
2. Is there adequate cash in the business or a life insurance policy that will provide enough liquidity in your estate to pay all probate costs, legal fees, estate taxes, and other expenses arising from your death so business assets do not need to be sold immediately and the business has enough funds to continue to operate?
3. If you have a business partner or co-owners in the business, is the business formally organized in an entity such as a partnership, limited liability corporation or corporation? Is there a partnership agreement, shareholders agreement, operating agreement, living trust or other written document that gives your partners, co-owners or key employees the right to purchase your interest in the business upon your death or disability?4. Have you given your business partner or a co-owner a durable financial power of attorney that authorizes him or her to operate the business and handle the finances if you become disabled?5. Does your will or living trust contain a provision authorizing the executor or trustee to continue operating your business or to sell the assets?6. Have you taken steps to ensure your business assets will not be tied up in a lengthy probate proceeding after your death?
7. Do you have business plans, financial statements, insurance policies, organizational documents, and other essential records in a place accessible to your partner, co-owners or executor in the event of your death or disability?8. Do you have a backup plan in place with alternate vendors or competitors that addresses the immediate needs of your clients or customers to continue to receive critical products or services in the event of your death, disability or sudden absence from your business?9. Have you calculated the approximate amount of estate taxes that may be due on your estate and the impact estate taxes will have on your heirs and/or the financial viability of the business?10. If one or more of your children or other heirs will be involved in running the business after you’re gone, does your estate plan address the inheritance of other children or heirs that will not be involved in the business?
11. Is there sufficient liquidity in your estate to pay vendors, suppliers, and other creditors of the business upon your death or disability? If not, does the business own adequate life insurance or business overhead insurance?If you do not have a plan in place for your business that addresses these issues, the starting point is to write a list of your concerns and what you want to happen with the business after you are gone, as well as if you become disabled. Then consult an estate planning attorney and a financial planner for help creating a plan.
Protect Business Income for Your Surviving Spouse, Partner or Children
Many American families are wholly dependent on their family's small business for their income. Despite how crucial the ongoing success of that small business is to the whole family, most small business owners do not have any type of business succession plan to protect their business income. For an overview of this often overlooked element of estate planning for business owners, see Business Succession Plan.
Owners of Farms, Ranches, and Land Have Special Estate Planning Concerns
If you operate a business that involves a farm, ranch or large parcel of land, you face unique estate planning challenges. Time is critical when operating this type of business. Failing to make an estate plan can result in lengthy delays that could severely damage your business.For information about essential estate planning documents and strategies for farmers, ranchers, and landowners, see Farms and Land.
Estate Planning and Business Succession Planning
For more information on the legal issues involved in estate and business succession planning, refer to our articles on life insurance and types of trusts.
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