If you own a business, you know how much time you spend fostering growth. However, many business owners fail to think about what would become of the business if something were to happen to them. Research shows that about 55% of people in the U.S. die without some sort of estate plan or will. But estate planning is crucial, especially for business owners. Fortunately, there are some easy strategies that can help business owners form their estate plan.
First off, business owners should start with a will. A will is one of the most basic estate planning documents that allows for the distribution of assets as was intended. In the case of a business owner, the writer of the will, or testator, can decide who will be responsible for the continuation of the business. Without even a basic will, business partners, employees, and the company itself can be harmed in the event that something happens to the owner.
It’s also important to consider taxes. Estate taxes can be as much as 50% of the total value of a business. These taxes must be paid within a certain time period after the owner has passed. Unfortunately, because of the extent of these taxes, many businesses end up having to sell to afford them. Many business owners do not realize this problem and don’t focus on minimizing their taxes like they should.
Organization is key when it comes to estate planning. One important thing that should be organized is important records. These records may include the business plan, financial statements, or anything else essential to the business. These documents should be stored in a secure, but accessible location in the event of the owner’s passing. The continuation of the business may rely on these documents, so it’s important they’re in a known location.
And lastly, business owners should always create a succession plan. A basic succession plan should state the transfer of management and ownership of the business. While a will can outline who will be responsible for the company, a succession plan should go into more detail. Management succession planning should include things training, delegation, and support of successors while ownership transfer planning should include things like coordination between owners and managers and timing of the transfer.
Overall, creating an estate plan for businesses is not an easy task. Business owners should think carefully about what they would want to happen to their business after they’re gone and who they think who best be able to take the company in the right direction.