3 Reasons You Need an Estate Plan If You're a Business Owner

You’re busy. As a business owner, your attention is limited and there’s always something that needs it. You’ve got to meet payroll, you’ve got to meet quarterly growth expectations, you’ve got the daily fires to put out. Trust me, I get it.

Estate planning is important, but it doesn't feel urgent. Those fires need to be put out today and there’s always tomorrow (or so you think.) The truth is you absolutely need a plan for managing your business in your absence.

For business owners, estate planning & business planning are tethered together. Odds are your business is one of your most valuable assets, so when you plan for your business, you’re planning for your family was well, even if it doesn’t feel like it.

It’s not just your family. If you don’t have a plan, your clients, team, and business could face brutal consequences if you were to become incapacitated or pass away unexpectedly. Thankfully, even a basic foundational estate plan could mitigate these risks.

Here are three concerns business owners must consider and how an estate plan can address them.

1. Could Your Business Survive Probate Court?

When people think of estate planning, they almost always mention a will. While it’s true that you can pass a business on through a will, it’s not a practical way to do so. That’s because a will must go through probate. This is a legal proceeding where a judge supervises the distribution of your assets. Probate is not an efficient means of transfer; it’s a lengthy, expensive, difficult, and exposing process.

Completing a probate can take months or even years. If you end up in probate, your business control of your business could get wrapped up in court. While control of your business is wrapped up in court, operations and cash flows can be greatly disrupted. Not only that, but your family might not be able to access essential assets like financial accounts. And your family will need to hire a lawyer to complete the probate. These fees are not cheap and if your business foots the bill, it will drain company resources even further.

The probate court record is also open to the public, meaning anyone, even your competition, will be able to access it and see sensitive business information.

All of this assumes that no one sues to challenge the validity of the will. Which would make the entire process take even longer and cost even more.

If you’d like to avoid probate all together, place your business in a revocable living trust, or use an irrevocable trust, or some combination of the two. Assets titled in the name of a trust are transferred are transferred via the instructions in the trust agreement. This allows for a smooth transition outside of court. Also, since the trust agreement is never filed in court or any other public record, they remain keep your information private.

2. Who Would Keep Your Business Running If You Became Incapacitated?

Incapacity is the liminal space between life and death. If you’re still alive but can no longer make decisions for yourself, perhaps due to illness or injury. A will would be ineffective in a situation like this because you’re still alive. If you don’t have an estate plan that addresses incapacity, the court will have to establish a guardianship. In a guardianship, the court will appoint a guardian over your person and your property. These two roles may be the same person, they may not. But, like probate, guardianship can be a lengthy and expensive process. If the guardian appointed to oversee your business does not share your values or clashes with your team, operations could be disrupted and workflows compromised.

A power of attorney can prevent any of the issues described above. But it must be a durable power of attorney. The reason is that a durable power of attorney will survive incapacity while a regular power of attorney does not. A durable power of attorney allows you to appoint another person to make financial and business decisions for your. This person, called an agent, would be able to sign documents on your behalf, run payroll, and make business decisions. Another option, for those who put their business in a trust, is to have a trustee specifically for operating your business in the event of your incapacity.

3. What If Something Happens to Your Business Partners?

If you have equity-holding partners in your business, you must have a detailed plan for what would happen to their ownership interest should one of you get divorced, become incapacitated, or die. If there is no plan, you could end up with your co-owner’s spouse, former spouse, or other family members as business partner with voting rights and decision-making authority. As you can imagine, this is a recipe for disaster. From the potential for vindictive sniping that comes from having former spouses having to make decisions together to the lack of expertise or wherewithal that an inherited owner may have, the potential for conflicts and operational issues abound.

By using a buy-sell agreement, these issues can be avoided. A buy-sell agreement lays out a roadmap for how ownership should transfer if a business owner leaves due to death, retirement, or divorce. The buy-sell agreement allows remaining owners to buy the departing owner out. This avoids the complications that would arise from having to unexpectedly deal with new and potentially unqualified business partners. The purchase of the departing business owner’s interest is often secured through life insurance policies, which guarantees there’s sufficient liquidity to purchase the interest and thus, keep control of the business.

TealAcre: Protecting Your Business, Legacy, & Your Family's Future

If you’re a business owner without an estate plan, your business’ long-term stability is at risk. At TealAcre, our Family Wealth Planning Session process can help you create a comprehensive plan that keeps your business running smoothly when you and your loved ones need it most. You read this far because you’re curious about estate planning. And, you’re curious about estate planning because you have questions. ?You read this far because you’re curious about estate planning. And, you’re curious about estate planning because you have questions. These questions can be related to what will happen to your family, your assets, or business should anything happen to you. Instead of going at it alone, let TealAcre help you get the clarity and peace of mind you’re looking for. To contact us you can:

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