There is a lot to think about, when business owners begin estate planning.
As business owners start thinking about the most valuable asset that they own, they need to make some major decisions about their estate plan: do they want to pass the company to the next generation or sell it? In both cases, says Smart Business in the article “Questions for business owners to consider when estate planning,” starting the process of planning needs to begin early to ensure a smooth transition.
If the owner waits until illness or disability occurs to begin planning, chances are good that it will be too late.
First, the business owner needs to determine, if the business should continue or if it should be cashed out. If the owner wants to see the next generation take over, the owner will need to take a candid look at how engaged various family members are in the business and if they can realistically manage and continue to operate it, without the founder at the helm.
If there are many family members—kids, in-laws, etc.—then roles need to be defined, so everyone knows their responsibilities.
If there are children who have no interest in being part of the business, then a decision needs to be made about how they will benefit fairly.
If one of the owners of the business is not a family member, the owners need to discuss how that ownership is going to transfer, when one of them departs. You’ll need buy-sell agreements in place, as well as a succession plan. What will happen if one of the owners becomes disabled or dies unexpectedly?
The decision to sell the business or plan for the non-family management team to control the business, needs to be made and acted upon. The management team needs to be on board with these decisions and everything needs to be in writing.
The biggest obstacle to smooth transitions for business owners, is failing to make a decision. If the heirs are left to figure things out and end up battling over shares of the business and responsibilities, the business will suffer, and the family is often left needing to sell an unprofitable business that has lost value.
Planning for a business owner to step down, should start once the business is successful and profitable. Having a succession plan, which also includes an estate plan, prepares for any unexpected occurrences and allows family members to get comfortable in their roles as future leaders of the business.
Speak with an estate planning attorney about your plans for your business to ensure that a successful plan aligns with your estate plan.
Reference: Smart Business (Aug. 27, 2018) “Questions for business owners to consider when estate planning”