By Jennifer Solak
Updated Mar 30, 2022
Business owners wear many hats, and because of that, it’s easy to put estate planning behind other pressing business matters. In reality, however, considering what would happen to your business if you became incapacitated or pass away is a pressing responsibility for any business owner. It is likely that your business is your most valuable asset, and as such, creating a succession plan for that business is crucial for its continued success as well as your loved ones’ future well-being.
Below are a few estate planning strategies that can help smooth any transition should something happen to you.
If your estate plan consists of only a Will, your estate—including your business and its assets—must first go through the court-supervised probate process when you pass away. It will easily take a few months before the Court can appoint someone to act on behalf of you and your business, and such delay may disrupt operations and cash flow. In addition, because probate is a public process, your business affairs could potentially be open to your neighbors, or your competitors.
A better way to ensure the continued success of your business is to place your company in trust. A trust is not required to go through probate, and all assets placed within the trust can be immediately transferred to the person of your choice in the event of your death or incapacity.
If you become incapacitated by illness or injury and you haven’t legally named someone to manage your business assets, the court will choose someone for you.
Again, having a trust and a named Trustee would allow your business to be operated in the event of your incapacity, without the necessity for any court process at all. Another estate planning vehicle that can help is a durable financial power of attorney. A durable financial power of attorney allows you to name the person you would want to run your business and handle your financial affairs if you ever become unable to do so yourself. You can grant your agent the legal authority to handle your business affairs, such as managing payroll, signing documents, and making financial decisions.
If your business partner dies, becomes incapacitated, or gets divorced and you don’t have a legal agreement that states what should happen to your partner’s share of ownership, you could find yourself with business partners you never counted on, such as your partner’s heirs or former spouse.
To prevent such conflicts, you should create a buy-sell agreement. A buy-sell agreement outlines exactly what would happen to your business in the event you leave the company for any number of reasons, or what should happen when one owner dies, becomes incapacitated, or gets divorced. It can also help your loved ones from getting stuck owning a business they don’t want and can’t sell.
The information in this column, which was sponsored by Solak Legal as part of The Leader Expert Series, is intended to provide a general understanding of the law and not legal advice. Readers with legal questions should consult attorneys for advice on their particular circumstances.