Three great reasons to estate plan
Many business owners are in high-speed mode, spending all of their available time simply growing their businesses. Things without hard deadlines get postponed. However, as one’s business grows, and one hires more employees, and as more people are dependent on the business you have nurtured, it is time to think about investing in some estate planning and business succession issues.
There are at least three very good reasons to engage in estate planning for the self-employed: disability, death and your family. You may never need the documents you create, but those documents are a gift you leave to your family, officers or employees, not to mention clients and customers, because you are leaving a roadmap.
The roadmap has great value because at a minimum, it may allow the people you care about to have some certainty during a difficult time, and at best, it may save your business to the benefit of many people and help avoid expensive court-proceedings or disputes.
Some of the primary reasons our self-employed clients decide to invest in an estate plan are as follows:
• Temporary Disability: You may be a healthy 40-something who is out there skiing or mountain-biking, which is great. However, if you incur a head injury, as have two of my clients, that might require you step out of your business for several months and recover. A short-term injury can your ability and competency to make decisions.
Meanwhile, no one at your company is signing contracts or checks, and your employees do not know who the boss is: should they take direction from your spouse who is not involved in the business, or from a key officer or employee? With a simple power of attorney, effective only if your doctors certify in writing that you are disabled, you can ensure that your business runs as smoothly as possible if you are out.
This provides certainty to your family, employees and clients. In contrast, if there is nothing in place, the business may wither, or your loved ones may may need to go through expensive court proceedings to simply get the legal right to make decisions while you are temporarily out of commission.
• Permanent Disability: If permanently disabled, you may still leave a business that is a going concern that other people can run or that can benefit you or your family, if you engage in planning, the business does not have to go away simply because you cannot be part of it. Even sole proprietors can set up systems that allow another skilled and trusted colleague to run the business at a fair price with profit paid to you or your conservator of assets, or to your family.
You can get your intent on the record as to who you want to be your physical guardian as opposed to the person who would take charge of your assets. You can also engage in planning that allows your business partners or key employees to buy the business from you or your family. The alternative is your business withering, expensive guardianship proceedings which are then determined without your intent playing a role in the judge’s final decision as to how various issues should be handled.
• Death and your Business Interest: If you pass away, do you want your business sold, and if so, by who and how quickly? Alternatively, who might receive your business interest? Who should run the business, which is a different question from who should profit from it? What happens if you pass owning a business with partners or employees?
The default is that your family would inherit the business, but do such family members have the requisite experience to run your company if you were in a coma or otherwise incapacitated? Do your partners want to be in business with your spouse or your children? Would you want certain trusted employees or partners to buy the interest or would you wish them to run the company and pay profits to your family?
What do your shareholder or membership agreements say about these issues? A good estate planning attorney will ask you these questions and others, and get to you really think about your intent for your business in the event of incapacitation or death.
• Self-Employed with Children? If you are fine with your children inheriting all of your assets at the age of eighteen, including your business, if something happens to both you and your spouse, regardless of their maturity and ability to hand assets, then you may not need an estate plan. However, most of our business clients conclude that they do not want their eighteen year old or twenty-something child to handle their business interests, and therefore create estate plans that allow a trustee to handle the business interest until a more mature age, and to receive profits, and invest them, with appropriate disbursements to your children in the short-term for education or other necessary expenses.
• Estate Tax Minimization. If your assets are over the limit set by Congress, and you’ve done no estate planning, certain portions of your estate will be taxed at a rate as much as 45 percent. You may not feel wealthy, but the value of your business will be assessed should you pass, and it is therefore worth understanding whether your estate may be unnecessarily exposed to paying estate taxes, and you’re your options are for minimizing such taxes. You may wish to plan for any estate taxes owed, or you may wish to start gifting appropriate amounts of business ownership to your key employees or the next generation.
Self-employed individuals are busy people, but they do have special issues to address, and invariably, it is this author’s experience that such individuals sleep better after thinking through the above-raised issues, and others, and investing in an estate plan that protects their business and their families