3 Things A Small Business Owner Needs In An Estate Plan

Estate planning is crucial for anyone. But if you have a business, estate planning is even more important. Think of your business as sustained support for your loved ones; its ability to continue when you are gone is part of the financial support you are leaving to your loved ones.

And yet, a lot of people may have very comprehensive personal estate plans, but give little thought about estate planning for their small business.

Financial Power of Attorney

A financial power of attorney is a good idea for anybody, but particularly for those with businesses. A financial power attorney gives whomever you designate the power to handle your financial affairs.

For most people, it means paying bills, managing bank accounts, taking or paying loans, or doing whatever you would do personally with your financial affairs. But for a business, it allows the person you designate (sometimes called an attorney-in-fact, although the person does not need to be an attorney), to handle the business’ affairs.

The attorney-in-fact can make decisions for the business, and handle its bank accounts and do whatever you could have done with the business.

Another good thing is that a financial power of attorney comes into play when you are incapacitated—so even if you were in that state, but do not pass away, you can still ensure that the business can operate.

Business-Specific Trusts

Trusts are used often in estate planning. But in the business context, the trust can serve a multitude of purposes. One major benefit, is that the business will pass to whomever you designate outside of probate.

If the business does get probated, things can grind to a halt, because the business is now part of your estate, controlled by the probate court. The business may need the court’s approval to make major decisions, and the court may designate who runs the business. This can be time consuming, and may end up with the business not being run the way you intended it to be.

The Buy-Sell Agreement

You may not want your beneficiaries to continue to operate the business—you may want them to just reap the financial benefits of your interest in the business. That’s where a buy-sell agreement comes into play.

A buy-sell agreement obligates the other partners or owners of the business, to purchase your (now your beneficiaries’) interest in the business upon your passing. Your interest in the business will have to be appraised, so that there is a number or formula to know how much the purchase amount will be.

In some cases, insurance policies are taken out by other business owners or partners, to fund the payout to your beneficiaries for your interest in the business.

Remember that a lot of these documents need to work in conjunction with, and cannot contradict, your corporate documents. This means start early in having your estate plan created, so that your business and estate planning documents work in harmony.

Call the Torrance probate will and estate attorneys at Samuel Ford Law today if you are a small business owner and need to create an estate plan.

Source:

investopedia.com/terms/b/buy-and-sell-agreement.asp