People with valuable property often need to create an estate plan addressing their assets. They want to prevent their loved ones from fighting over their property and to establish a meaningful legacy after their passing.
After years of hard work establishing a successful small business or professional practice, the business may represent the most valuable asset owned by a testator. They need to consider that asset carefully when establishing their estate plan or updating their existing documents.
What are the most common strategies for addressing a business in an estate plan?
1. Choose a specific successor to inherit the company
Sometimes, individuals running small businesses or professional practices have already trained their replacements. A family member or professional acquaintance may have helped them run the business and may be capable of taking over after their passing.
Business owners frequently choose to leave the company to a specific person who may also run the organization in the future. Testators can accomplish that goal by including the business in a will or by arranging to transfer ownership as they prepare for retirement.
2. Establish a business trust
Maybe the owner of the business doesn’t have a specific employee or family member who wants to take over the company. Perhaps they worry about loved ones fighting over the business or selling it for short-term profit and effectively destroying their legacy.
Establishing a business trust can give the owner more control over the long-term future of the company. They can name a trustee who is capable of managing the company to oversee operations. They can also name beneficiaries to receive proceeds when the company proves profitable. Trusts can also be helpful for those concerned about probate litigation, creditor claims or estate taxes.
3. Arrange to sell the company
Given that a business may be the most valuable asset an individual owns, they may want their loved ones to benefit from its overall worth. Leaving instructions for a personal representative to sell the business after the owner dies can be a viable solution.
Business owners can leave directions to divide the proceeds of the sale among specific beneficiaries. The company can enrich the lives of the people they love without forcing them to change jobs or take on the responsibility of business management.
Creating an estate plan that effectively addresses a business or professional practice requires careful consideration of every option available. Business owners often need help establishing documents that work effectively given their wishes and circumstances.
