What Happens to Your Business if Something Happens to You?

In today’s world, an illness or even an accident can quickly change life as we know it.? During these types of crises, family members may be emotionally overwhelmed, uncertain, or facing difficult decisions.? If you are a business owner, these matters can be far more complicated.? Most business owners face four options when a crisis occurs:

1)???? Pass the business on to a family member,

2)???? Sell your ownership share to a partner(s),

3)???? Sell to a third party,

4)???? Close it down.

All these options require careful consideration and planning ahead makes the entire process much easier for everyone involved.

Strategies for Personal & Business Assets

Business owners must create a strategy for managing both their personal and business assets. Often, a trust can make it easier for your spouse to access business or personal assets, specifically if they are a beneficiary of the trust.? However, in some cases, this may not be the most desirable outcome.? Perhaps the spouse needs to receive income from the business but be completely removed from day-to-day operations.? Estate planning for business owners considers all these scenarios and typically involves your closest advisors which may include a financial planner, estate planner, business partner and any family members who are intimately involved in the business.

The tax implications of your estate and your business must also be considered. We work collaboratively with your accountant, financial planner, and other trusted advisors to create a strategic plan.

A Story About Leaving Your Business & Family in A Lurch

Not too long ago, we advised the wife of a small business owner, who had recently passed away.? The husband had a successful business, but the wife was not involved in the day-to-day operations.? While there were some mechanisms in place for the business to continue, there were some serious legal issues that needed to be addressed immediately.? Most importantly, the only other person listed on the business bank accounts had since left the company, so there was no one authorized to continue payroll, pay bills, etc.? This placed the business and the wife in an awkward and unnecessary situation.? It also forced her to make some long-term decisions about the business when she was not in the ideal frame of mind. This situation, unfortunately, is not uncommon but the reality is that there is a lot you can do ahead of time to avoid this kind of crisis.? By taking time to implement certain planning strategies with an Estate Planning Attorney, not only will your business continue, but it will provide your family with security and income, long-term, if such a crisis occurs.

Questions Every Business Owner Must Consider

While there are a variety of personal issues addressed in an estate plan, here are some additional questions to consider, if you own a business:

1)???? Do you have proper measures in place to ensure that daily business operations continue??

2)???? Who will run the business if you become incapacitated??

3)???? Do you have legal documents that designate the people you wish to assume leadership and decision-making roles?

4)???? Who has check signing authority and access to the bank accounts?? Are these individuals trusted agents that you can count on in a crisis?? Are they still with your organization or do your bank accounts need updating?

5)???? Is there a Board of Advisors in place?? Are they familiar with the crisis plans?

6)???? Who is authorized to make financial decisions, access 401k or IRA accounts, both personally and on behalf of the business?

7)???? What happens if the business needs to be sold and how will those proceeds impact family members from a tax perspective??

8)???? Do you have family members with special needs?? If so, how will inheritance or other assets impact their ability to continue to receive benefits?

9)???? Is there a buy-sell agreement in place with clear direction as to ownership, purchase price, proceeds, etc.?

10) How are the required financial and legal documents stored so they will be accessible by the people you choose, in the event of a crisis?

Insurance & Other Considerations

Life insurance can provide financial support to your family, in the event of your passing. It can be used to cover personal expenses, mortgage payments, and basic standard of living.? Life insurance is a typically distributed as a lump sum, so you will want to plan carefully based on the personality styles of those who serve as your beneficiaries.

It is also important to have a legal buy-sell agreement which outlines the conditions under which one business owner, partner, or entity can buy out the other’s share.?? Many business owners opt for key-person insurance policies to help facilitate a buy-sell agreement or to cover the purchase price or business expenses while the company is in transition.

Businesses with intellectual property may want to also consider a digital estate planning document for digital assets such as an e-commerce website, patents, or other digital assets.

Employees

While your family is no doubt a priority, employees face uncertain times in a crisis too.? After all, they are what keeps your business up and running and they want stability too.? If payroll can’t be completed or your vendors don’t get paid, your business may be at risk of closing or losing valuable talent.?

The experienced estate planning attorneys at Frame & Frame can serve as a trusted guide for you, your family, and your business. This allows you to consider all these scenarios and important decisions, long before an illness or injury occurs.? Reach out to us today and schedule a private consultation.?

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