When we think of estate planning, most of us share the common goal of wanting to protect our spouse and our children from an uncertain future. We believe that it is our responsibility to provide for them at a time when they will be vulnerable without us. We focus on planning for this uncertainty and create a legacy that will extend far beyond our natural lives.
When we first talk to clients, their view of legacy is focused on how they will pay for the kid’s college education and ensure that the surviving spouse will be able to survive with only one salary. They also might contemplate who is the right person to raise their minor children or how they can encourage family harmony among adult children.
These are all important considerations, of course. However, what’s often initially overlooked is the business.
Today, there are well over 27 million entrepreneurs in America. Many of these are small business owners and family run business who are much more than just the principles of their company. In most instances, the owner and their family’s well-being is deeply tied to the business’s success. He or she has a hand in almost every part of daily operations, be it bookkeeping, product generation, acquisition, or management. Without them, the business is at risk of ceasing to exist.
Despite the fact that your business is top of mind at almost every moment of your daily life, when it comes to estate planning for your business be careful not to let it slip through the cracks.
Being business owners ourselves, we understand just how important your business is to you. We know just how focused you are growing your business and meeting the day-to-day attention it demands. We know how easy it is to allow business planning to fall by the wayside. However, we’ve also seen how neglecting business planning has had disastrous results for families.
One recent example was that of a very successful business owner who had built a construction company that generated millions of dollars in revenue every year. While he had other assets, it was this company that was to be fund his retirement plan and his family’s legacy. We were contacted by his family after he suddenly died of a heart attack at 52 years old. While he had set up some basic estate planning to avoid probate, he had neglected to plan for his business. As a result, what was once a multi-million dollar company was valued at nearly nothing and soon closed leaving little to nothing to his spouse and children. The legacy died with him, but did not have to with a little planning.
How do we ensure that your business will be able to not just survive but thrive in your absence? Let us share three key considerations you need to consider when it comes to combining your business and your estate planning goals. These are tips that we share with our clients who want to protect not just themselves and their family, but the business they have built to sustain them for the long run.
1. Choose your business’ decision maker now.
Just as you would ask the question who would care for your minor children should you not come home tonight, you need to ask yourself who would open the doors to your business if something happened to you. Many business owners are so busy working in the business they fail to step outside of it, even for a moment, to contemplate the next steps. You can start by deciding what needs to be done immediately should you be unable to come in and then develop a disability plan that contemplates these needs. From there we can turn to thinking about who will make these decisions in your absence. Is it your spouse? A friend? An existing employee?
2. Create the right estate planning documents to support your goals.
Many of the business owners who come to us initially believe that they will be able to have an employee or spouse make decisions for them while they are either disabled or in the event of their death. In almost all instances, this is simply not true. You need to have the right legal documents in place that contemplate the needs of the business and create legal authority to act. You do not want your business to be in a position, due to lack of planning, where there is no one with legal authority to operate it each day.
3. Strategize with your professional team to ensure your success.
Just as you plan for your retirement, your taxes, and your estate planning, you need to work with your team on your business planning as well. You will want to work with your accountant and your estate planning attorney for the type of corporate structure that makes the most sense for you and your business from management, tax, and legacy planning perspectives. You will also want to consider the best asset protection planning strategies to protect your personal assets from the liabilities of your business. Of course, incorporating insurance planning will also be important in the event of a crisis. You will want your business to continue to have the cash flow to operate or the ability to fund a succession plan so that your spouse and family can benefit from the equity in the business.
There is nothing easy about being in business for yourself. We know firsthand how challenging it can be. Despite this challenge, it can also be one of the most rewarding experiences you will have during your life. What we stress to you now is to ensure that your business is protected against any form of uncertainty. Do not wait to ask us your questions so that we can share with you planning tips and tricks that make sense based on your unique situation.
