Most of us get so caught up in the daily grind, we forget to plan for the future. For small business owners, it’s absolutely vital to look ahead and plan for the day you retire or pass away. “Small business owners need to plan for their estate even more than the average person does… Not doing so can destroy your family and business. And a good estate plan can take years to put in place, so this is not a conversation you want to procrastinate on,” CPA Kelley Long said.
We ran across a great article in Money magazine breaking down the “ins and outs” of planning for the future as a business owner. We broke it down and pulled out the best nuggets of information, but you can read the full article here if you’re interested.
Create a will. “This document allows you to specify how you want your assets to be transferred, and to whom, after you die. It also lets you identify an executor who will take charge of those assets and manage their disbursement according to your instructions.”
Set up a trust. “Any items you place under the ownership of the trust will bypass the probate process. Thus assets owned by the trust can be transferred to heirs much more quickly; your estate will remain private; and, depending on the type of trust you set up, it could dramatically reduce the legal fees and estate taxes your estate or heirs will have to pay. And with a revocable or living trust, the terms and assets can be easily changed if your decisions change.”
Draft a power of attorney document. This will “allow you to name an individual to carry out your business affairs should you become incapacitated.”
A buy-sell agreement is a must if you co-own a business. “This contract establishes an agreed upon plan for the business’s future should one owner die or become incapacitated… It defines a sale price for the business and your share, and allows you to document whether or not you want your partners to buy out your share, whether you want to block certain people from stepping into the business, or if you’d prefer family members to sell your portion.”
Establish life insurance, especially if you have a business partner. “To raise the funds necessary to buy out a deceased partner’s share under a buy-sell agreement, the living partners often need life insurance. Each partner should purchase a term life insurance policy and name the other partners as beneficiaries.”
Come up with a succession plan. “If you’re a sole proprietor, you need a clear plan for what should happen to the businesses when you die. If you want to pass on the business, you need to begin delegating and preparing a successor.”