As a small business owner, it’s understandable if you haven’t given much thought to your estate planning. It’s easy to become engrossed in the day-to-day management and operation of your business. As a result, it can be hard to imagine how your business would function without you.
But suppose one day tragedy strikes. As the owner, you might be injured, or become sick; you might be forced to retire; God forbid, you might pass away. What will happen to your business then?
As much as we hate to consider them, these circumstances can happen to anyone at any time. That’s why it’s so important for business owners to develop a robust estate plan, so that no matter what happens, their business will stay in the right hands.
At Generations Law Group, we help businesses with all the necessary types of plans. Below is a brief explanation of what an estate plan can mean for your business, and 5 reasons why you should contact an attorney to help you start planning today.
What is an estate plan?
An estate plan is a comprehensive legal plan that will manage all your property, assets, and possessions after your death. Estate plans can contain important information about every area of your life: from your estate, to your adult children, and even to your business.
A business succession plan is a similar document that outlines the transfer of ownership and management of the company after the owner’s death (or retirement).
Since many small business owners are the sole owners and operators of their businesses, it’s common to include a plan for succession within their personal estate plans.
Business succession plans can cover any of the following topics:
- choosing a successor or successors
- valuing the business
- maximizing tax benefits
- setting a timetable for the transition
- preparing your team for the transition (training, documentation, etc.)
- securing your future after retirement
At Generations Law Group, we recommend developing both an orderly succession plan, which prepares for the gradual transfer of ownership within your own timetable, as well as a crisis succession plan, which dictates the transfer of ownership in the event that you are incapacitated or pass away.
Whichever is the case, it’s important that you start planning with an attorney now, instead of putting it off for a later date.
Five reasons to develop a plan today:
1. To ensure the continuity of your business.
Passing the reins of your business without an orderly succession plan can often result in confusion and chaos. In a worst case scenario, your business could ultimately fail. Check out our article A Tale of Two Small Businesses for an example of what can happen when tragedy strikes and your business has no succession plan.
2. To protect the wealth you have created.
Succession can be an expensive process. Between legal fees, taxes, and the potential purchase of your business by a third party, you or your successor could potentially lose a huge chunk of money. By planning ahead for all of these variables with the help of an experienced attorney, you could be saving a serious amount of money– possibly the difference between your business failing or staying afloat.
3. To avoid default state laws.
Each state has its own laws regarding default business succession. In Idaho, without a succession plan, your business will pass to your legal heir. In one case that we worked on, this meant that ownership of the family business passed to a teenager who had just graduated from high school– a kid who had neither the experience nor the interest to take the reins. By choosing a successor and developing a comprehensive transition plan, you can avoid decisions being made by default when your input is not available.
4. To minimize estate and gift taxes.
With the advice of an attorney experienced in business planning, you can avoid some of the most cumbersome taxes that might affect the succession of your business. Your attorney’s expertise can help you legally reduce the amount of taxes that you owe as a result of your business succession, through a detailed understanding of estate tax law.
5. To provide guidance and establish your legacy.
Let’s face it, owning and operating a business is a major life accomplishment. And although you may find a family member, employee, or business partner to be your worthy successor, the fact is they may not be fully prepared to step into your position and run the business. That’s why laying down some guidance will not only ensure the survival of your business, but make sure your legacy lasts well beyond your lifetime.
Contact a business attorney in Boise today
Whether you’re nearing the end of your career and you’re looking to make a smooth exit, or you’re just thinking ahead and you want to plan for the inevitable, beginning work on a succession plan for your business is a smart move.
Generations Law Group can provide the experience and knowledge needed to ensure that your business is taken care of after you’ve moved on. Contact us today for a strategy session.