Four reasons estate planning is essential for business owners

If you are running a business, you are probably too busy to worry about your estate plan.

Given that your business is likely your family’s most valuable asset, estate planning is crucial not only for your company’s continued success, but also for your loved one’s future well being.

Without a proper estate plan, your team, clients, and family could face dire consequences if something should happen to you. Yet these dangers can be fairly easily mitigated using a few basic estate planning strategies.

Issue no. 1: If your estate plan consists of only a will, your estate -- including your business and its assets -- must go through probate when you die.

Most people think estate plan equals will, and while you can leave your business to someone in your will, it’s not the ideal option. That’s because upon your death, all assets passed through a will must first go through the court process known as probate.

Plus, while your family and team may know how to run your company without you, they might be unable to access vital assets, such as financial accounts, until probate is concluded.

* Estate planning solution: A much better way to ensure your business’s continued success following your death is by placing your company in a trust.

A trust is not required to go through probate, and all assets placed within the trust are immediately transferred to the person, or persons, of your choice in the event of your death or incapacity creating a smoother transition and control, all with the privacy from a public probate that trusts offer.

Issue no. 2: If you become incapacitated by illness or injury and you haven’t legally named someone to manage your business assets, the court will choose someone for you.

Remember that a will only goes into effect when you die and offers no protection for your business if you’re incapacitated by accident or illness. With just a will -- or no estate plan at all -- the court will appoint a financial guardian or conservator to assume control of your business.

* Estate planning solution: A durable financial power of attorney allows you to name the person you would want to run your business and handle all of your other financial affairs. If you’re incapacitated, this person will be granted legal authority to handle your business affairs.

This is also accomplished by having a trust and a named trustee to continue your affairs.

Issue no. 3: If your business partner dies and you don’t have a legal agreement that allows you to purchase your partner’s share of ownership in your company, along with a source of liquidity to fund that purchase, you could find yourself in business with your partner’s heirs.

If you share ownership of your business with one or more other people, it’s crucial that you have a legally binding plan in place designating what would happen to each partner’s ownership interests should one of you leave the company, get divorced, die, or become incapacitated.

* Estate planning solution: To prevent such conflicts, you should create a buy-sell agreement outlining exactly what happens to your business in the event an owner leaves the company, or an owner dies, becomes incapacitated, or gets divorced.

Issue no 4: If you name a family member to run your company after your death and you don’t provide them with a detailed plan, your business can be ruined by just a few poor decisions.

Even if your successor doesn’t destroy your company, he or she can cause serious conflicts among your staff, clients, and family simply by managing the business differently than you.

* Estate planning solution: A comprehensive business succession plan can help ensure your company doesn’t fall apart when you pass on. Such plans provide stability and security by laying out detailed instructions for how the company should be run.

An effective succession plan should provide the new owner with a roadmap for your company’s continued success following your death or retirement.

If you haven’t taken the time to create a proper estate plan, your business is missing one of its most essential components.

This article is aservice of Law Office of Lasca A Arnold, PLLC.