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3 issues business owners should address when estate planning

On Behalf of | Jul 3, 2024 | Estate Planning |

A bare-bones estate plan isn’t enough for everyone. Business owners often have a variety of unique challenges to address.

When someone owns and operates a business, estate planning protects not just that individual and their loved ones but also the company that they have helped grow. What estate planning moves are often necessary for someone who has an ownership interest in a business?

Succession planning

A succession plan is a document discussing how someone else might take over an executive’s or owner’s position at the company. Proper succession planning might involve detailing the responsibilities that come with someone’s job. They can identify training or specific experience that makes someone a better candidate. They can also identify specific people who they think might potentially be capable of performing their job. A succession plan reduces the likelihood of the company failing when an owner or executive suddenly leaves their role at the company.

Planning for a personal emergency

An estate plan doesn’t just address what happens after someone dies. It can also provide guidance and support in an incapacitating emergency. For example, powers of attorney are popular estate planning tools. Someone with powers of attorney in place can name a trusted individual to act as their agent or attorney-in-fact. Financial powers of attorney often prioritize the protection of personal resources and the fulfillment of personal financial obligations, like paying a mortgage.

However, financial powers of attorney can also be of the utmost importance for those who own and operate businesses. They can designate someone trustworthy and competent to take over paying their employees and fulfilling other business financial needs. Incapacitation can sometimes last for weeks or months and might leave the business at risk because the owner cannot manage business affairs.

Addressing their ownership interest

The person named in a succession plan to take a position of responsibility isn’t necessarily about to become the new business owner. They may simply be the manager or executive. It is possible and sometimes even beneficial to name a different party as the new owner of the company. In fact, the current owner could name multiple beneficiaries to share the ownership of the company after they die, become incapacitated or retire. There are many ways to transfer the ownership interest someone holds in a business. They can offer an opportunity to buy it from their estate. They can bequeath it to a specific person. They can even arrange for the company to transfer to a trust.

Those who have an ownership interest in a business often have unique challenges ahead when creating an estate plan. Realizing that business ownership makes estate planning that much more important can inspire people preserve the businesses they created or run and amplify their personal legacies.