When you own a small business, you need to do some estate planning to protect both your business and your family. If you have not yet made an estate plan, you may be unfamiliar with the advantages it can offer to them: namely, peace of mind and practical steps to take should something happen to you.
One of the most important parts of an estate plan for a small business owner is succession planning. Have you decided who will take over your role in the business if you cannot perform it? Have you documented processes and written down important information such as passwords and account numbers? Ask yourself these questions and spend some time making a succession plan.
As a small business owner, you may have partners who help run the business or who made financial contributions to get it running. You may want to form a buy-sell agreement with the partners as part of your succession plan. This agreement explains how to determine the value of your share in the business, who will take over your share if you pass away, and whether you want the share to be sold. Without an agreement like this, your family may inherit your share. However, your partners may not want to work with your family, or your family may not have time to run the business.
Small business owners, who often invest a substantial portion of their personal money into their businesses, may leave little when they die to dependent family members. If all the money is tied up in the business, relatives could be in trouble. You can purchase life insurance that pays out to your family in the event of your death. Alternatively, the beneficiary could be your business or business partner, so that he or she can buy you out of the business under the terms of your buy-sell agreement. You also could set up a life insurance trust to receive the money and pay it to trust beneficiaries.
Power of Attorney
In California, you can sign a durable power of attorney to allow another person to carry out your business affairs if you are incapacitated. For businesses that need to pay employees or pay bills on a regular schedule, the owners need these special powers of attorney.
Again, make sure the person you assign to carry out your affairs will be able to access important information needed to keep the business running. You need a plan for how your agent will log in to the computer, find the passwords, unlock the store’s door, or pay invoices. Spend some time doing basic estate and succession planning so that if disaster strikes, your business and family will land on their feet.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.