As a business owner, you have different estate planning needs than someone with a W2 salary job. Perhaps you are planning on selling your business to fund your retirement. Maybe you plan on passing your business on as a multi-generational enterprise. Regardless, you don’t want to leave your family without a concrete plan for how your business will be handled in your estate.
I highly recommend that all business owners have an estate plan that protects their wealth and their family. It also needs to cover plans for the business. How will it carry on once you are gone? Or should there be a plan in place for a sale?
Creating an estate plan generally involves consulting with a number of professionals: a financial advisor, a trust and estates attorney, and potentially a tax accountant. These professionals can ensure that you have a plan in place.
Start With the Basics
First off, make sure your basic needs are covered. You’ll need to establish a will, a power of attorney, and a healthcare power of attorney. Your will outlines how your assets will be handled. Your power of attorney specifies a person to manage your finances if you are incapacitated, and your healthcare power of attorney specifies a person to make healthcare decisions for you if you are incapacitated. By having these documents in place, you know that someone you trust can make decisions for you and your business when you are no longer able to do so.
While you may need a will to appoint a guardian for a child, you may want to set up a trust for your business instead of managing it via a will. Wills are subject to probate and less flexible than trusts. If you set up a trust and place your business in it upon your death, you can save time and money and avoid public disclosure of assets.
Think Ahead to Taxes
While the current federal estate tax exemption is currently $12.06 million, in 2025 the current exemption will “sunset” and revert to the 2018 level of $5 million, adjusted for inflation.
Even if your business isn’t valued at this level right now, the federal estate tax exemption can change, and is not predictable. For this reason, I recommend ensuring that you are considering tax efficiency into your plan. If the inherited business needs to pay taxes, and there isn’t a plan, this puts an immediate cash crunch on the business at the worst possible time.
Will Your Family Inherit Your Business?
If you plan for any of your family members to inherit your business, you need to have a clear succession document. If ownership will be divided, you must outline the decision making powers of whomever will act as chief executive. You also may need documents in place that limit the business to your children only depending on your situation.
Do You Need a Buy-Sell Agreement?
Do you have multiple partners? Then to avoid disruption, you’ll need a buy-sell agreement. A buy-sell agreement gives the existing owners the right to buy out the exiting owner’s share of the business using a pre-established valuation formula.
Get Insurance!
People so often overlook the need for insurance, but you need to protect both your family and your business. You’ll need separate policies for each of those beneficiaries. Consider a personal life insurance policy and disability policy with your family as the beneficiary to protect them.
To protect the business, look into life and disability policies on yourself and other key people, with the business named as the beneficiary.
Conclusion
For business owners, I recommend creating a comprehensive estate plan sooner than later. Estate planning is an ongoing process that will need to change as the valuation of your business changes. If you plan to pass your business on to your heirs, you’ll need to incorporate them into the operations of your business so that they are ready when the time comes.
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