Estate planning is something everyone should consider to make sure your wishes are followed after you pass away. If you are a business owner, estate planning can help ensure your business will be taken care of in accordance to your wishes in the event you should die or become incapacitated. This is especially important if your business is your family’s primary source of income.
Regardless of the size of your business, careful and strategic planning can help avoid consequences in the future. If an owner unexpectedly dies or leave the business, a thriving business can quickly lose revenue and fall apart. Business owners should be proactive by having well-drafted estate planning documents and communicating with the other owners or their families to minimize devaluation. A few simple strategies can benefit your business now and in the future.
If multiple people hold an interest in a business, an unexpected death can mean that the beneficiaries or heirs of the deceased owner may now hold an interest in the business. This can get complicated fast, especially when spouses or minor children are involved. A legal document called a buy-sell agreement can help avoid what could inevitably become an expensive and stressful process. Similar to a Last Will and Testament or premarital agreement, a buy-sell agreement controls business decisions in the event of an owner’s sudden departure.
The events that trigger a sudden departure should be clearly established to avoid discontinuance or decrease in the value of the business. Without this agreement, you may end up with a new and unexpected business partner (or partners!). This situation is less than desirable for most business owners. Unfortunately, a high number of business owners lack well-drafted estate planning documents. If your business has more than one owner, you should all sit down and discuss what is best for the business if something were to happen to one of you and make sure to create an estate plan and buy-sell agreement so it is all in writing. Otherwise, it could open the door to he-said-she-said situations and damage your business or business relationships.
Other than death, events such disability or incompetency, retirement, and bankruptcy are common triggers for a buyout. The buy-sell agreement stipulates what price will be paid for a partner or shareholders portion of the business, who can purchase the interest or share, and who makes the decisions.
An insured buy-sell agreement offers further protection from a triggering event. A buy-sell agreement that is not insured does not offer the same security since there is no guarantee that means will be available to purchase the interest or share for the agreed upon price. The objective of any estate or succession plan is to ensure business continuity and minimize any disturbance a sudden departure may cause. A well-funded and insured buy-sell agreement is not only responsible, but integral for the success of the business.
Our attorneys can help with the preparation of a buy-sell agreement and our in-house insurance agent can assist you with obtaining the right insurance product to fund it.
Power of Attorney
Most are familiar with a power of attorney in a traditional sense. It is commonly used to grant authority to another person for certain legal matters if you become incapacitated. A power of attorney is not limited to personal affairs and can be tailored to suit your specific business needs.
Declaring an individual as your attorney-in-fact may provide you relief of minor day-to-day matters should something happen to you and you can’t make those day-to-day decisions. Of course, you will want to appoint a responsible person you trust to act in the best interest of you and your business. A power of attorney can be as broad or as limited as you want, and may include authority to deal with financial assets, payroll, and payment and hiring of vendors and negotiation and payment of creditors.
This document is good to have in place even for something minor, like a surgery, in case a decision has to be made while you are unable to do so. The power of attorney would only be for any time you are incapacitated and unable to make decisions. If you pass away, the power of attorney is no longer valid and your loved ones and business would need to look for your last will and testament.
Our attorneys can assist with custom-built powers of attorney specific to the needs of a business owner and their desire to delegate their authority to others.
Last Will and Testament
A Will is often considered the most important tool in regards to estate planning. While a Will is typically used to distribute personal assets, it cannot be emphasized enough that every business owner should have one. A Will is critical for sole proprietors as the business is more likely to be considered a personal asset.
The beneficiaries of your estate, who are named in your will, should ultimately be your decision. Without a will, that decision will likely be made by the laws of intestacy in your state. This could mean that someone who doesn’t know anything about your business could be left in charge of it.
Furthermore, you will maintain greater autonomy of what happens to your business after your death by appointing a business executor who will be responsible for the continuation of the company. Most tend to avoid dwelling on their eventual departure, but this simple step only requires a little time and effort and can potentially avoid years of wasted time and money for your business and beneficiaries.
Your estate plan should be reviewed periodically, especially if your circumstance has changed in any way. This could include a marriage, divorce, birth of a child, or changes to your business. Most documents can easily be updated. You should do your research and consult with an attorney if you suspect your documents should be updated. The attorneys at Hopler, Wilms & Hanna can assist you with preparing or updating a Will.
Family businesses play a vital role in our economy and provide jobs for many North Carolinians. The lack of proper estate planning in family businesses will cause uncertainty on whether the business can continue and who should be in charge in the event of death or incapacity. Leaving this decision to the remaining family members can hurt the value of the business and the relationships of those involved, especially as the family may be already grieving the loss of a loved one.
Business is not just business when it comes to family – emotions can (and will) run high and at least some familial disputes will happen. Your succession plan should clearly define how your company will transition the ownership. Your plan should be in writing and properly executed to avoid confusion or unintended consequences. Not having a properly written and executed estate plan can cause a lot of he-said-she-said during a time when emotions are already volatile over the loss of a loved one and can lead to hostilities if family members have different opinions.
Further, a verbal promise may not mean much if your family has to follow the laws of intestacy in your state. You will want to make sure your wishes are in writing in case there is disagreement so that a judge or other legal professional will know what you wanted. Having a will drafted and executed by a professional will further make sure your wishes are followed according to the law.
Keeping an open line of communication is key. If at all possible, consult with those who may be involved during the decision-making process. You may have an impulse to hide things from those who may be hurt by your decisions or make empty promises. While understandable, it will be easier to deal with any feelings of resentment during your lifetime.
Eventually they will find out and it may be too late. Furthermore, your loved ones will have more time to process and you will have time to explain and clear up confusion. You will want to make sure your family is aware of your documents and the roles they potentially play in those documents. If you are open with your reasons, it can drastically cut down on any hostilities later.
Our attorneys can assist family businesses with a plan to ensure that the business you have built isn’t destroyed from conflict or inaction, and can help the family execute that plan when the time comes.
If you are a business owner, you have likely sacrificed a lot over the years to build a thriving company. Business owners need a solid estate plan in place, perhaps even more so than an average person.
Not doing so can destroy relationships between family and friends and jeopardize the business you have worked so hard to create. People will die, but a business can last for generations with proper estate planning. The strategies discussed in this article can easily be implemented. We recommend involving professional advisors, such as an attorney or financial planner to ensure your estate plan is solid and legally enforceable. You can call our office today to set up an estate planning consultation and make sure your business is secured for the future.