It takes years of hard work to build a successful business and once created, most business operators can see themselves at the helm, directing operations for years to come. Unfortunately, most business operators do not plan for the unwanted event of death due to accident or the passage of time (old age), which can lead to the destruction of what has taken years to build.
Planning can help preserve what has taken a business operator a lifetime to build. Specifically, every business operator should spend some time with their attorney to discuss an estate plan, not just for the benefit of their immediate family, but also for the benefit of their employees and customers. Such a plan should include a method of allowing family members who have been involved in the business to continue operating it or for a key employee to take over the business.
When preparing an estate plan, an attorney should look at the goals of the client. If the goal is to have the business continue in the family, then an attorney should provide for some form of a “living trust” to be created, which specifies how the business will be controlled after the death of the founder and further, under what circumstances (if any) that the business operations could be sold. It may also be important to start transferring some of the ownership to members of the family or an irrevocable trust in order to avoid estate taxes when possible. The “control” of the business may vest in one individual, or if so desired, may be controlled by a group of trustees.
If the goal of the founder is to provide for the financial security of the founder’s family, an attorney may need to plan for a “buy-out” of the business interest by key employees, which event could be funded from operations or through the purchase of life insurance. There are many different plans that can be selected, but what is important is that the business operator selects one.
An estate plan can be done through a “will” or when appropriate a “trust.” Circumstances may vary as to which instrument should be utilized, and a qualified business attorney who is versed in estate planning can be of assistance. Make sure the attorney you choose to advise you has a background in tax planning and business. You need to provide for a smooth transition while paying the least in both income taxes and estate taxes upon the transfer of the business operations.
While I know it is hard for anyone to consider their eventual death, it is a subject that must be considered by all business operators. It does not matter if your business is large or small, it does not matter if you are the sole owner or there are many shareholders, you must make appropriate plans. Some examples of the need to consider the possibility of death for a small operator is when a lease is entered into, if the business is personal and would not survive the death of the operator, or a long term lease without a cancellation clause due to death that could cost the business operator’s family thousands of dollars with the lease remaining in force even though the business is not operating.
Avoid potential problems, seek the assistance of an attorney who is qualified and who you trust. Remember, an attorney should be willing to meet with you to discuss your needs for a short period of time (about a half hour) for you to determine if you like the attorney and if the attorney can be of assistance to you.