Estate Planning For a Family-Owned Business
Updated: Nov 24, 2021
Small business owners are mainly focused on building up their business. They have a goal to achieve and a plan to reach those goals. As they focus on their daily tasks, they tend to forget about building an estate plan for the future outside of them.
This is where it becomes important to build a solid estate plan that will protect your assets in case something happens to you or if you become incapacitated. In this article we’ll discuss some basic things that every small business owner should know about estate planning.
What is Estate Planning?
In simple terms, estate planning is the process of setting up legal documents that will help you manage your assets during your lifetime, and after you die. One of the main reasons why small business owners don't want to think about an estate plan is because it's hard to think about their business running well without them.
Questions to ask when thinking about an estate plan
The following is a list of things that you need to consider when creating your estate plan:
1) Who will be in charge of the company if something happens to you?
2) How will the company be divided among your children or grandchildren after you die?
3) What will happen to the company’s assets?
4) Will there be any special provisions for your employees?
These questions and more are what needs to be addressed with a paralegal or a financial advisor. Then you can ask him/her what type of document would work best for your situation.
Start with a Will and a Basic Estate Plan
There are a few documents that you will need to fill out.
The first is to fill out a will. A will is a legal document that answers the questions above about how your property is to be divided when you die.
A power of attorney, to which appoints another person to manage your family-owned business and/or financial decisions if you are unable to function correctly.
Lastly, a health care directive needs to be filled out. This is appointing an individual to make medical decisions for you.
All of these documents ensures that someone you trust is taking care of your family business and you in case something happens.
Plan for Taxes
Taxes are a part of estate planning that you don't want to overlook. If your estate is valued over $11.70 million, there is a 40% federal estate tax that is billed to your beneficiaries before they receive their inheritance. Most small business owners are exempt from this, but states charge their own specific taxes. In California, there is no estate taxes.
Making a Plan with the Family
Lastly, there may be a few family issues that may need to be addressed as the estate plan is being made. These decisions can be emotional but also made with a better future in mind. Some examples include:
1) Is one child going to get all the shares of the company?
2) Are both parents going to be named as co-executors of the company?
3) Should the company be sold?
Answers to these questions will depend on who owns the company and whether the company has been successful.
Here at Independent Legal Solutions, we will help you through the estate planning process. If you would like to hear more about this or need advice from an expert paralegal, give us a call at 909-451-9819 or send us a message.