Small business owners have poured your blood, sweat, and maybe even a few tears into building your own business. Pressing questions about supply chain, quality control, and even payroll demand your attention daily. As a business owner, much of your attention and energy should be focused on today. As an estate planning and business attorney, my job is to help you plan for tomorrow.
Your business isn’t just a way to pay the bills. It’s an extension of your family, a legacy you’re hoping to pass on. And that’s not just about what happens after you’re gone; it’s about protecting what you’ve built right now.
Here are the main points every business owners should consider when planning their estate:
Business succession planning and estate planning are two sides of the same coin for small businesses.
When you’re mapping out your estate plan – deciding who gets what, how things are managed – it’s impossible to ignore the elephant in the room: your business. How interest and control transition after you’re gone (or if you can no longer run it) is intrinsically linked to your overall estate plan. Ignoring one while planning the other is like trying to bake a cake with only half the ingredients – it just won’t turn out right. They need to be considered together, a cohesive strategy to protect both your family and your entrepreneurial legacy.
Figuring out how to divide business equity among children can be a real head-scratcher, especially if not all are involved in the business.
This is where things can get a little… spicy. You love all your kids equally. (right?) But what happens when only one or two are actively involved in running the family business? Giving everyone an equal share might sound fair on the surface, but it can lead to complications down the line. Imagine siblings with different ideas about the company’s direction clashing, or those not involved wanting to cash out, potentially destabilizing the business. It’s a delicate balancing act – and one that an outside party, like an experience estate planning attorney, can help navigate. When a particularly tense decision needs to be made, I often tell my clients to “blame the attorney.” I don’t mind a harsh email now and then, as long as it helps the family move forward and make the right decision for everyone in the end.
Beyond the main business, it’s crucial to keep a clear record of all your other business interests, even those “back-of-a-napkin” deals.
As an entrepreneur, opportunities pop up, and sometimes you jump on them quickly. Maybe you’ve got a small stake in another startup, or a partnership you haven’t fully formalized yet. These “side hustles” and less formal arrangements are still assets and need to be accounted for in your estate plan. Those handshake deals and informal agreements can become real headaches for your loved ones to sort out if they aren’t
documented. Taking the time now to list out all your LLCs, partnerships, and other business interests, and ensuring the paperwork is in order, will save a lot of potential headaches and legal wrangling for your family later on.
Life insurance policies serve different purposes: some protect your family, while others can be vital for a company’s buy-sell agreement.
Life insurance isn’t just about providing for your family if the unthinkable happens; it can also be a powerful tool in your business succession plan. You likely have policies designed to offer financial security to your spouse and children, which is essential. But have you also considered how life insurance could facilitate a smooth transition of your business? A well-funded buy-sell agreement, for instance, uses life insurance proceeds to allow the remaining business owners to buy out the shares of a deceased owner. The rules around this change often, and allowing a knowledgeable attorney to help will make sure everyone is taken care of.
Planning for incapacity – both at home and in the office – through POAs, Healthcare Directives, and Member Control Agreements is crucial for protecting yourself and your business.
We all like to think we’ll always be in control, but life can throw curveballs. What happens if you become temporarily or permanently incapacitated? Having the right legal documents in place is essential. A Power of Attorney (POA) allows you to designate someone you trust to handle your financial and legal affairs if you can’t. A Healthcare Directive (also known as a living will) outlines your wishes for medical treatment. And for your business, a well-drafted Member Control Agreement (or similar document depending on your business structure) can specify who will step in to manage the company if you’re unable to. These aren’t just pieces of paper; they’re your way of ensuring your well-being and the continued operation of your business, even when you can’t be at the helm.
Estate planning for family and closely-held businesses isn’t just about legal documents. It’s about protecting your legacy, ensuring fairness for your loved ones, and providing for the unexpected. It’s a conversation worth having, and honestly, the sooner you start, the better. It might seem daunting, but working with the right professionals to put a solid plan in place is one of the most valuable investments you can make for your family and your business.