This article was created by BlogHer for LegalZoom.
Unfortunately, most small businesses don’t survive the first generation — not because the business itself wasn’t profitable, but because of a lack in estate planning measures. While estate planning does cover your property, it also refers to other assets including but not limited to your car, personal possessions, investments and of course, your business. It’s always best to have a plan or at least start thinking of the future of your business and who will run it in your absence. Will it be a family member? Or would you rather your partners buy out your share?
Either way, having a proper plan in place prevents partners or family members from asking these questions and ensure that your wishes are carried out. Executing someone’s affairs after death could potentially get messy, especially with multiple parties involved. That’s why, if you want to take care of business even after you’re gone, you need to plan with your family and business partners for what will happen to your estate and your business while you’re still here.
LegalZoom has estate planning options depending on your needs such as a living trust estate plan or last will estate plan, and offers a breakdown of how to best get your estate in order. But before you do that, it’s crucial to understand why it’s needed for business owners, so you can properly incorporate it into your business plan and choose the right course of action for you, your family and your business.
It’s key to financial stability
Regardless of if most of your money is in your property or business, without a plan in place, ownership of your assets could dissolve if you become incapacitated or die unexpectedly. But when you have an estate plan, in case something does happen, you can preserve your equity and ensure your family is taken care of financially.
It keeps your business running
If you’re not around, do your partners or employees know who would take over? It shouldn’t be a guessing game, which is why an estate plan can help. This is where open, honest communication comes in as well. While you may have someone in mind to fill your shoes if need be, they may not want to. So, before you sign pen to paper, make sure you talk to him or her first.
It helps determine how you pay debt
If you’re a sole proprietor, your business is not separate from your personal assets. An estate plan helps create a clear plan of action for how things should carry on, including how debts should be paid. What you own personally can be used to cover business debts, but if so, you need to incorporate all your assets and liabilities, and specify what funds or other assets can be used to repay such debts. Because without it properly outlined, paying off large debts on short notice can be a massive headache for employees or family.
It minimizes taxes
If nothing else, one good reason for estate planning is to minimize the amount your estate will owe in taxes, according to LegalZoom. You’ve worked hard to make your business profitable and you don’t want to lose that due to estate taxes. Since most business assets are not liquid, paying estate taxes often requires selling the business.