Estate Planning for Business Owners

As a business owner you have invested so much into making your business successful, and there will come a time when it may be sold or passed to the next generation. On average, 30% of privately held businesses survive into the second generation and less than 12% survive into the third. However, having the proper estate plan in place can help support your business’s longevity.

While each business will have its own unique customized roadmap there are best practices that apply to almost everyone. The decisions made in the near term will likely drive how your business is sustained in the long term.

Consider these elements as you develop your plan:

Living Trusts

A living trust has several important advantages over a will: It transfers assets immediately upon your death, avoiding probate; and allows you to designate a successor to take control of the business.

Insurance

Life insurance coverage can not only provide your family with a source of income, but can also guarantee an income stream to the business to keep it operating in your absence. Disability insurance provides similar coverage should you have a short or long-term disability. Personal life and disability insurance will help protect your family and key person life and disability insurance will help protect your business.

Buy-Sell Agreement

A buy-sell agreement ensures that upon certain conditions—like the death or disability of a partner—the remaining owners are able to purchase their shares of the business, or those shares will pass directly to their heirs.

Succession Plan

If you want a specific family member (or team member) to run the business, you can designate that person in the plan, and provide a transition schedule for exactly how and when the business will be transferred to that person(s).

Once you have an estate plan in place it is important to update it regularly to ensure it is in line with your current goals. Life events such as marriage, divorce or birth of a child or grandchild can affect how your plan will be structured.