Small business owners must often incorporate their estate plan with a business succession plan. Having an estate plan ensures that your wishes for your business are carried out after your death. Whether you want to pass the business to another person or liquidate the business, our California estate planning attorney can help you identify your goals and draft an estate plan that meets those goals.
Deciding What Happens to the Business After Your Death
The first step is to decide what you want to do with your business after your death. If you are a sole proprietor, you can choose to either pass the business to another person or to close and liquidate the business upon your death. However, if you have partners or co-owners, they may not want to shut the business down after your death.
Your business operating agreement and the documents filed to create your business should address what happens to your interest in the company upon your death. In some cases, you may pass your interest to your heirs. However, the corporate documents might dictate that the co-owners or the company may purchase your interest in the business from your estate.
A buy-sell agreement is one way to handle your interest in the business upon your death or disability. The buy-sell agreement allows co-owners to purchase your interest in the business. The proceeds from the sale pass through your estate according to the terms of your Will.
However, if you intend to leave your business to your family or other heirs, you will need a business succession plan. A business succession plan designates a person or persons to take over your business after your death or if you become incapacitated. The plan is a detailed roadmap for preparing family members or others to take over the company and address other legal matters.
Considering Tax Consequences for Your Estate and Family
Another critical component of estate planning for small business owners is tax planning. You do not want your estate or heirs to be burdened with estate and gift taxes after your death. An estate plan can help you reduce or eliminate taxes. You might want to consider using a trust to hold your interest in the business.
The assets of a trust pass to the trust beneficiaries outside of probate. Depending on your situation, you could create a trust that continues after your death. An estate attorney can help you explore the various options for protecting business assets before and after your death.
Consider Purchasing Additional Life Insurance Coverage
Life insurance is an essential consideration for anyone. However, a small business owner needs to consider whether the business can support their family after their death. If you are the key person that operates your business, the company may not generate enough income without you to support your family.
Purchasing additional life insurance coverage can provide your family with immediate resources to pay living expenses after your death. The insurance proceeds can bridge the gap between your death and finalizing the business transfer.
Contact Our California Estate Planning Attorney for a Free Consultation
Estate planning is important for everyone, but especially for small business owners. An estate plan ensures that the business you created can continue to provide for your loved ones after your death. Protecting your business assets preserves your legacy for future generations. Contact our office to schedule a consultation with an experienced California estate planning attorney.