Small Business Owner? Know What Can Happen to Your
Business If You Become Incapacitated or Pass Away
Preparing your company for your incapacity or
death is vital to the survival of the enterprise. Otherwise, your business will
be disrupted, harming your customers, employees, vendors, and ultimately, your
family. For this reason, proactive financial planning -- including your
business and your estate plan -- is key. Below are some tips on how to protect
your company and keep the business on track and operating day-to-day in your
absence.
Preparing
for the Unexpected
If you are a small business owner, your focus
is likely on keeping the company running on a daily basis. While this is
important, looking beyond today to what will happen if you can’t run your business
should be on the top of your to-do list. If you die or become incapacitated
without a plan in place, you will leave your heirs without clear instructions
on how to run your company. This can jeopardize the business you worked so hard
to build. The right plan along with adequate insurance can help keep your
business running regardless of what happens.
Execute
the Proper Business Documents
If your company has several owners, a buy-sell
agreement is a must. This contract will outline the agreed upon plan for the
business should an owner become incapacitated or die. Provisions in the
buy-sell agreement will include:
●
how the sale price for the
business and an owner’s interest are determined,
●
whether the remaining owners will
have the option to buy the incapacitated or deceased member’s interest, and
●
whether certain individuals can be
blocked from participating in the business.
Execute
the Proper Estate Planning Documents
A properly executed will or trust will allow
you to state how you would like your assets to be transferred -- and who will
receive these assets -- at your death. A will or a trust also lets you identify
who will take charge of the assets and manage their disbursement (including
your business accounts) according to your wishes.
Although a will can be used to pass assets at
death, creating and properly funding a trust allows any assets owned by the
trust to bypass the probate process making distribution of assets to heirs much
faster, private, and may reduce the legal fees and estate taxes your heirs will
owe.
Additionally, a trust can help your loved ones
manage your trust assets if you become incapacitated. While you are alive and
well, you typically act as the trustee of the trust, so you can manage your
business and assets with little change from the way you do now. But unlike a
will, a trust allows your successor trustee to step in manage things if you
become incapacitated. This process avoids court involvement, allows for a
smooth transition of trust management (which can be very important if your
business is an asset of your trust), and proper continuing care for you in your
time of need. Although having a will can be a great way to start, most business
owners are much better off with a trust-based estate plan.
Purchase
Additional Insurance
Whether you own the business by yourself or
are a co-owner, it is important to have separate term life insurance and a
disability policy that names your spouse and children as beneficiaries. The
money from these policies will help avoid financial hardship while the buyout
procedures of buy-sell agreement are being carried out.
Contact
an Estate Planning Attorney
Having a plan for your business in the event
you are unable to continue managing the company is essential to keep the
company going. An attorney can explain the many options you have to protect
your enterprise so that you can focus on what you do best -- running your
company.
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