The overall goal of any well drafted estate plan is typically to protect assets while you are alive and arrange for those assets to be passed down to, and provide for, loved ones once you are gone. If you are the owner of a small business or family enterprise, business planning services should be included in your overall estate plan to ensure the continued survival of your business should something happen to you. Even if you are not concerned with the survival of your business when you are gone, you will still need to include your business in your estate plan to ensure that your loved ones benefit from the value of the business when you die, become incapacitated, or even retire.
What Would Happen If…
Often, the best way to illustrate the need for something is to simply ask a few relevant questions. When it comes to the need for business planning services in your estate plan, this usually works. Therefore, ask yourself the following questions:
- What would happen to your business if you died tomorrow?
- What would happen to your business if you were in a catastrophic accident next week and were incapacitated as a result?
- Who will take over your business when you retire, die, or become incapacitated?
- Is your successor prepared to step into your shoes?
- Are there sufficient liquid assets to cover the tax implications of your death?
- Do your children know your plans for your business?
- Will there be conflict because of your chosen successor?
Unless you have an answer for each one of these questions, and the answer is incorporated into your estate plan already, it is time to review and revise your estate plan to include business succession planning.
What Does “Business Planning Services” Entail?
Business planning services, also referred to as business succession planning, creates a plan for your business in the event that you are no longer able to run the business as a result of your death, incapacity, or retirement. Well over half of all small businesses do not make a successful transition to the next generation because of a lack of planning. Moreover, the value of many businesses is significantly diminished when a plan is not in place for the sale or transfer of the business when something happens to the owner. A successful business plan within your overall estate plan should take a number of things into consideration, including:
- Structure – the legal structure of your business is important when creating a succession plan. For example, if you plan to pass on the business to family members you may wish to create a Limited Liability Company to facilitate the transition to the next generation. If selling the business to a partner is your plan, a Partnership Agreement might be a better option.
- Leadership – people often make the mistake of only planning for the possibility of their own death; however, planning for incapacity is of equal importance. Who will step in if you become incapacitated? For a small business, even a week without a leader can be devastating. Not only must you make the decision who will step in and take over but you must decide how they will accomplish the transition. Simply discussing the matter with an adult child, for example, won’t suffice. To be effective your chosen replacement must have the legal authority to take your place. Therefore, you need to reduce the agreement to writing with the help of your estate planning attorney.
Finances – one of the biggest problems family owned businesses have when trying to transition to the next generation is a lack of liquid assets at the time of the death of the patriarch or matriarch. A hefty tax obligation can then force the sale of critical business assets. Planning ahead for this possibility will prevent the failure of your business when you die. On the other hand, if you plan to sell your interest when you die, become incapacitated, or retire you may wish to enter into a buy-sell agreement now with a partner or other interested future owner to ensure that you or your beneficiaries will be fairly compensated for your interest in the business.
If you own a small business in the State of Illinois hat you need to protect in your estate plan, contact the experienced Illinois estate planning attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.