If you are a business owner, it’s easy to see why Estate Planning has less priority than your other business matters. After all, if you’re facing challenges meeting next month’s payroll or your goals for growth over the coming quarter, concerns over your potential incapacity or death can seem far less urgent.
But the reality is considering what would happen to your business in the event of your incapacity or when you die is one of your most pressing responsibilities as a business owner. Although estate planning and business planning may seem like two separate tasks, they’re actually inexorably linked. Here are four issues your company and family are likely to encounter.
1. Going Through Probate Court Hearings
When it comes to creating an estate plan, most people typically think of a will. While it’s possible to leave your business to someone in your will, it’s far from the ideal option. That’s because upon your death, all assets passed through a will must first go through the court process known as probate.
During probate, the court oversees your will’s administration to ensure your assets (including your business) are distributed according to your wishes. But probate can take months, or even years, to complete, and it can also be quite expensive as well.
Plus, while your family and team may know how to run your company without you, they might be unable to access vital assets, such as financial accounts, until probate is concluded.
Solution: Placing your company in a Trust: either a Revocable Living Trust, an Irrevocable Trust.
2. Over Reliance On A Will
Another issue with relying solely on a will is that a will only goes into effect when you die and offers no protection for your business if you’re incapacitated by accident or illness. With just a will or no estate plan at all the court will appoint a financial guardian or conservator to assume control of your business until you recover.
Like probate, the court process associated with guardianship can be long and costly. And whether the guardian is a family member, employee, or outside professional, it’s doubtful that individual would run your business exactly how you would want them to, and this can seriously disrupt your operation.
Solution: A Durable Financial Power of Attorney.
3. Your Business Partner Passes Without A Legal Agreement
If you share ownership of your business with one or more other people, it’s crucial that you have a legally binding plan in place designating what would happen to each partner’s ownership interests should one of you leave the company, get divorced, die, or become incapacitated.
For example, should your partner die without such a plan in place and the partner’s children inherit his share of ownership in your business, you could find yourself in business with your partner’s kids or be forced to pay an inflated price for their share of the business.
Solution: Create a Buy-Sell Agreement.
4. Leaving The Company To A Family Member Without A Plan
There are countless stories of family members assuming control of multi-million-dollar businesses and running things into the ground in just a short span of time. And if such massive fortunes can be squandered so easily, it’s seriously doubtful that smaller operations like yours will fare much better.
Even if your successor doesn’t destroy your company, he or she can cause serious conflicts among your staff, clients, and family simply by managing the business radically differently than you. For this reason, simply naming a successor to take the reins in your absence is not enough.
Solution: A Business Succession Plan.
Get Help Today & Consult With An Estate Planning Attorney
Furthermore, every estate plan we create has built-in legacy planning services, which can greatly facilitate your ability to preserve and communicate your most treasured values, insights, stories, and mementos with the loved ones you’re leaving behind. We will offer you the support and guidance you need at Hurban Law.
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