Why Is an Estate Planner So Important For Business Owners?
If you operate a company, you need to get an Estate Planner. It's easy to put estate planning on the back burner when your other business concerns are more pressing. After all, if you're having trouble paying next month's payroll or meeting quarterly targets for growth, fears about your potential incapacity or death may appear relatively unimportant.
However, in the event of your incapacitation or death, preparing for what would happen to your firm is one of the most important tasks you have as a business owner. Many attorneys view estate and business planning as two separate tasks from a legal standpoint. They're linked inextricably, and given that your company is most likely your family's most valuable asset, estate planning is critical not just for its continued success but also for the well-being of your loved one. Thats where an Estate Planner comes in.
If you're not careful about planning, your loved ones could be left in an uncomfortable situation with no way to fix it. But some easy ways can mitigate this risk - all things considered, basic estate planning strategies will do wonders! Here are some of the challenges your firm and family may face due to inadequate estate planning and the solutions you can use to avoid them.
Issue: When you die, your estate plan must go through probate, which includes your business and its assets, if it is only a will.
A living will is one of the most famous estate planning documents. While a will might be used to direct the transfer of your firm to someone, it isn't the ideal solution. After you pass away, all assets must go through probate court proceedings.
The court reviews your will's administration during probate to ensure that your assets are dispersed according to your instructions. On the other hand, probate might take weeks, months, or even years to complete. It can also be quite expensive, which may severely disrupt your operations and cash flow. Furthermore, while your family and workforce may be able to manage your firm without you, they may not have access to critical assets such as financial accounts until probate is completed. Even if they have access to all of the needed resources, the legal fees charged by attorneys who will assist your family with probate administration might quickly drain your company's coffers.
It assumes that your will isn't challenged during probate, which is a genuine possibility, especially if your company is highly successful. If your heirs can't agree on who should run your business and how the assets should be split, a nasty court battle could develop for years, dividing your family and crippling your firm.
Solution: An Estate planner helps you protect your assets and keep them out of probate.
Given the numerous dangers associated with a will, putting your firm in a trust is a far better method to ensure its ongoing success after you pass away. A revocable living trust, an irrevocable trust, or some combination are all excellent options. A trust does not have to be probated, and all assets transferred into the trust are immediately given to whomever you choose if you die or become incapacitated.
When you pass away, having your firm held in trust will enable a seamless transfer of power without the time and money required with probate. Trust is also great because they're not public documents, so your company's internal affairs are preserved. Having an irrevocable trust doesn't mean you can never access the funds within it, but it does include provisions for what should happen in case of disaster or if you die.
Issue: The court will appoint someone to manage your business assets if you become disabled owing to sickness or injury and don't designate someone to do so.
Another disadvantage of relying only on a will is that it has no effect until you die. It does not protect your company if you are incapacitated by accident or sickness. With just a will—or no estate plan at all—the court will appoint a financial guardian or conservator to assume control of your business until you recover.
The court procedure associated with guardianship may be time-consuming and pricey, just as probate is. And even if the guardian is a family member, employee, or external professional, it's unlikely that person will run your company exactly the way you want them to. Not to mention that having a court-appointed guardian in charge of your business affairs is a public process, which means that your competitors may learn about any weaknesses in your company.
Solution: An estate plan can help you avoid court involvement if you become disabled.
A durable financial power of attorney is one estate planning instrument that can help prevent this. A durable financial power of attorney allows you to designate the individual you want to run your business and manage your other financial affairs if you become ill or you cannot help yourself. This person will have the legal authority to manage your company's operations, such as paying payroll, bills, and taxes on your behalf.
A lawyer can help you through the initial steps of the process and ensure that your company and other financial interests are taken care of by someone you trust instead of relying on the court to pick someone for you while you're incapacitated.
Because most firms choose to use trust and a specified Trustee, If you become disabled, your firm may continue to operate without the need for legal action.
Issue: If your business partner dies and you don’t have a legal agreement that allows you to purchase your partner’s share of ownership in your company, along with a source of liquidity to fund that purchase, you could find yourself in business with your partner’s heirs.
Suppose you grant ownership of your business to one or more other people. In that case, you'll need a legally enforceable plan in place that defines what would happen to each partner's shareholdings if one of you leaves the firm, gets divorced, dies, or becomes incapacitated. Without such a plan in place and the financial resources to execute it, your deceased partner's estate could own a portion of your business, and their heirs may have a claim on the company's assets.
For example, should your partner pass away without a plan and his children inherit his portion of the company, you may be required to deal with your partner's children or pay a higher price for their share of the business. A comparable scenario might happen if your spouse files for divorce and receives a sum of money from her former husband in the settlement.
Solution: Estate Planning can help you avoid these problems.
A buy-sell agreement is a legally binding contract that defines what happens to a business owner's shares in the event of death, divorce, or other life-changing events.
The agreement should include provisions for how the business will be valued and financed and what will happen to the ownership stake if one of the partners dies, gets divorced, or becomes incapacitated. A buy-sell agreement can help you avoid these problems by protecting your business interests in death, divorce, or other life-changing events.
A buy-sell agreement and a source of finance to allow the surviving owners to purchase the deceased partner's shares are also required. In most situations, purchasing life insurance is the most acceptable method to fund your buy-sell. For example, the firm may get a life insurance policy for each owner and receive death benefits to acquire the deceased founder's shareholdings.
Issue: If you name a family member to head your firm after you pass away and don't give them a thorough strategy, it may be ruined by just a few bad decisions.
Your company may be at risk if you don't have a plan for running it after you die. Without a clear succession plan, your company could be sold, liquidated, or taken over by someone outside of the family. An Estate planner can help you avoid this by giving you the ability to name a successor. Even if your replacement doesn't destroy your organization, they may cause significant divisions among your employees, customers, and relatives by running it entirely differently from you. As a result, simply selecting a successor to act in your place isn't sufficient.
Solution: Estate Planning Strategies
A well-planned succession strategy might assist to secure the continuation of your business when you pass on. Such plans provide your company's ownership, management, and financing after your death. Estate planning can help you avoid these problems by giving you the ability to name a successor and put together a plan for what will happen to your firm if you pass away.
An effective succession plan can provide the new owner with a road map for your firm's continued success following your death or retirement by detailing how ownership should be transferred, providing rules for compensation and promotions, establishing dispute resolution procedures, and more.
Secure Your Company, Your Legacy, and the Future of Your Family
A company without a planned succession is like a boat without a rudder. You don't have to be an expert to understand how critical it is for your business to have an effective succession plan. We'll work with you to develop comprehensive estate planning during our Life & Legacy Planning Process as your Personal Family Lawyer. It is an utterly different situation than firing an employee because they're not working out. It is time to perform your succession planning so that you may hand your firm down to the next generation in good shape.
Furthermore, every estate plan we create includes legacy planning services that can help you keep and communicate your most cherished values, insights, anecdotes, and mementos with the people you're leaving behind. You may feel confident in working with us because your business and legacy will provide the maximum pleasure for those you care about most.
Proper estate planning can avoid family conflict, litigation, and public notice. Contact us to schedule your Family Wealth Planning Session to develop a complete estate plan if you're ready. Even if you already have one in place, we'll go over it with you and help you update it so that your loved ones don't experience sadness due to mismanagement or estate planning mistakes.
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