October 23, 2023

When your days are consumed with running a business, it can be hard to look ahead towards tomorrow’s to-do list, much less towards a to-do list for something far in the future, like estate planning. If you’ve pushed off putting in writing what will happen to your business once you’re gone, it’s time to tackle that to-do list. Here are four items to consider when doing so:

1. The Importance of Having an Estate Plan.
For business owners, estate planning includes planning for what will happen to your business when you are no longer around. You’ve put years, decades, maybe even an entire lifetime into running your business. If the proper documents aren’t in place, you could have no say in what happens to your business when you’re gone. If you pass away without a plan in place, your business will end up in probate and pass according to the state intestacy statute. This places the business at risk of liquidity issues, legal disputes, and confusion over who will become the new owner or if the business will even continue to operate.

2. What Type of Issues Should Business Owners Address in Their Estate Plans?
Two of the most important considerations in estate planning for business owners are (1) who should own your business when you’re gone and (2) who should run your business when you’re gone. Sometimes the answers to these questions are the same, but it’s important to recognize that they don’t have to be. Perhaps you want to leave the business to your kids, but none of your kids are interested in running the business or none of your kids currently have the skills to run the business. You can put a plan in place that separates the beneficial ownership of the business from the management of the business, thereby allowing your kids many of the benefits of ownership, but not the day-to-day responsibilities. Alternatively, you can dictate that the business should be sold on your death and the proceeds divided in a certain fashion. Or perhaps you have no idea what the correct path should be. In that case, you can put people in place who have the authority to make that call when the time comes.

3. Succession Planning Versus Estate Planning
A succession plan is a plan for transitioning ownership and management of a business. It’s important to plan for and consider the transition process while you are alive. Most people intend to retire at some point. A succession plan helps facilitate the transition of your business during your life. However, a succession plan isn’t enough. Life is unpredictable, so while a succession plan is a great “Plan A,” you also need an estate plan to step in and facilitate the transition if you suddenly find yourself in a “Plan B” situation. Further, to accomplish some of your goals for transitioning your business, it may be most advantageous to utilize at-death transfers, in which case your estate plan will become an integral part of your business succession plan.

4. Do Your Current Business Documents Work With Your Goals?
Many multi-owner businesses have documents in place restricting an owner’s ability to transfer their ownership interest. A common version of this is a buy-sell agreement, which provides rules for how ownership interests can be transferred under specific circumstances – including death. Can the business owner freely transfer within their family, or do the other owners or the company get an option to buy out the ownership interest first? A lot of times, these documents were drafted when the business was formed. An important piece of estate planning for business owners is looking through the records of the company to ensure they allow the transition the estate plan calls for and having discussions regarding any updates that may be needed or advantageous.

I’m Ready To Tackle My Estate Planning To-Do List – How Do I Start?
Communication is key. As you start to consider how you’d like your business to transition once you’re gone be sure to have an open discussion with your family members, business partners, and other people close to the issue, including your attorney. We are here to help you organize your objectives, find solutions to achieve them, and draft document to put those solutions in action.

While estate planning for your business can seem daunting, at the end of the day, it’s important to recognize that not having a plan, is a plan itself. So, if you’re serious about the future of your business and you want to control what happens to it, it’s time to get started.

Morgan H. Sweeney, Summer Associate, contributed to this article.

©The Business Leader – October 2023.  Reprinted with permission.

This document provides information of a general nature regarding legislative or other legal developments, and is based on the state of the law at the time of the original publication of this article. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed. You should not act upon the information in this document without discussing your specific situation with legal counsel.

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