Estate Planning Considerations For Business Owners

Previously, when we discussed estate planning, we discussed how many people quickly dismiss it because they think they don’t have enough assets. To dispel that myth, we pointed out attorney Shekar Jayaraman leases his car, rents his apartment, and yet, there are several reasons why he would need an estate plan. That blog addressed how estate planning is critical because anyone can become incapacitated. Today, we will explain why business owners should embrace estate planning for several reasons. 

Business owners create their own success. Subsequently, they are responsible for ensuring the business will survive in their absence. They rely on themselves and their decisions to provide for their families, employees, and even their families. Businesses can pass through the probate process, which can harm everyone involved. During that time, who is responsible for making critical decisions? With that in mind, let’s go over why entrepreneurs need an estate plan and what they can gain by having one. 

The Benefits of Estate Planning

Your business is an asset, and to ensure it is appropriately managed and maintained, it—like anything else you own—can be passed down to a designated beneficiary. Without a plan, it will be subjected to probate, which is expensive in terms of time and money (and money lost). At worst, a lack of a plan could lead to a forced sale or other unfavorable circumstances. In the section above, we talked about incapacity planning, which is also paramount for entrepreneurs. Suppose you are physically unable to run your business. In that case, there has to be someone who can manage it and generate an income for those reliant on it. 

This is what is known as succession planning. It outlines what will happen to the business when you pass away, become incapacitated, or retire. You and your attorney can discuss several options, such as transferring ownership to someone in the company, transferring it to another family member, or selling it to a third party. The estate plan will include a detailed plan for how the transfer will take place. If you haven’t already done so, the estate planning process will likely include you obtaining a valuation. This is a prerequisite for understanding how much your business is worth so you can decide how much your heirs will receive if you sell it. 

It is essential to highlight that there are financial considerations beyond what we have already identified. Depending on your business’s value, it could be subject to estate taxes. Although too many variables come into play to discuss this fully here, you should note that your estate planning attorney can account for this when they create a plan that meets your specific needs and goals. 

For Those Who Are In the Process of Building a Business

If you are in the early stages of forming a business, there are vital steps you can take right now to set yourself up for long-term success. For example, you need to select a business entity. Your business’s structure has a direct impact on estate planning. Why? Because it determines whether your business’s assets are part of your personal estate. For instance, if you have a sole proprietorship (or a partnership), there is no delineation between what you own and what your business owns. When you form an LLC, it creates a barrier between the two, and this will be reflected in your estate planning. 

We have also mentioned this in previous posts, but it is important enough to repeat: Meet with a business law attorney about drafting a buy-sell agreement as soon as you begin your business. This is especially important if you have a partner. Buy-sell agreements facilitate transfers of ownership when one partner passes away or becomes incapacitated. It prevents the surviving partner from being attached to someone who inherited ownership. What happens if they decide to sell their ownership to a competitor or they want to reinvent the company itself because they are now part owners? These can be complicated situations, and buy-sell agreements can mitigate both scenarios. 

Meet with Jayaraman Law Every business owner should commit to working with an experienced estate planning attorney. This can be a key step toward navigating the challenges we have discussed. Jayaraman Law has a command of business law and estate planning, and we can develop a comprehensive estate plan that meets your needs. Contact our office today to schedule your consultation.

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Jayaraman Law

Jayaraman Law focuses on Estate Planning, Business Planning, and Real Estate. Each is executed with a passion for advocacy and serving clients. When your future depends on it, you need an experienced attorney. Our background is rooted in both the private and public sectors. Let our know-how be your greatest asset.