Putting together an estate plan is something that is easy to push off to another day.
No one wants to think about their own death, and unless someone is facing an illness or serious life event or has recently experienced a death of a loved one, planning for the inevitable does not always make it to the top of someone’s “to-do” list.
However, putting it off for another day only hurts the loved ones left behind, and that hurt is even more prevalent when the deceased leaves a small business with no estate plan.
Below are a few tips to assist in planning for what happens to a small business before death:
1. Will or Trust
Every individual should have at least a will or trust. This document details what that person wants done with all of his or her assets or debts after death.
A will or trust will designate the person who will ensure that all assets are accounted for and disbursed according to the document’s instructions. It would be in this document where the small business owner would explain what needs to happen with the business following his or her death.
2. Power of Attorney
All small business owners should have a power of attorney appointment, as well. This legal designation appoints someone to make legal and financial decisions on behalf of the grantor.
A power of attorney is only effective during the grantor’s lifetime and becomes enforceable only upon the incapacity or unavailability of the individual granting the power to another individual.
What happens to a business if the business owner is incapacitated but not yet deceased? Who carries on business as usual?
A power of attorney allows the person who owns the business to name someone to carry out business affairs and keep the business running and employees paid in the event he or she is unable to make any decisions.
Things happen, and it is best to be prepared for that possibility.
3. Create a Succession Plan
If the business is a sole proprietorship, the business owner may have never thought of what would happen to the business in the event of death. It is in these situations where a succession plan is critical.
If an employee has been identified who would want to purchase the business, make sure the estate beneficiaries are aware. Also make sure that this person not only has the financial ability to assume the business but also the knowledge and experience.
It is recommended as the business owner ages, he or she trains this new future owner on the ins and outs of the business. It is also recommended that the owner begin to slowly scale back on his or her part in the business, easing the future owner into responsibilities.
If no one is available to purchase the business, as the owner ages, make sure someone is appointed who can help close up business if death comes before the business can be closed. Many attorneys are trained specifically in the area of succession planning so find one that will work with the owner to help him or her through the planning process.
4. Who Will Buy the Business?
Perhaps the business is only owned by one individual, or it could be owned be several individuals. Regardless of how many cooks there are in the kitchen, it is best to have a contingency plan on who will buy the business in the event of the death of one or all of the owners.
Many business owners prepare buy-sell agreements, which are contracts that set out a plan for the business’s future if one or more of the owners dies or becomes incapacitated. The agreement will set the terms, including the price for buying out the deceased’s share of the business.
Having this price set already will make it easier for family members who will not need to determine what price is fair, and it will also save them the peace of mind from having to determine who could purchase the business.
Contact Brian M. Douglas, LLC today
If you are not sure you need an attorney, you can always come in for a consultation to discuss your situation. Call us today at (770) 933-9009 or contact us online to schedule your consultation with a Greater Atlanta area estate planning lawyer today.