When you own a business, estate planning becomes a bit more complicated. This extra complication is precisely the reason you should take care of your planning now, instead of putting it off for later “when you’ll have more time.”
As any business owner can tell you, finding free time is like striking gold.
As a business owner, it’s possible that a large portion of your wealth is tied up in your business. Therefore, your family’s income after your death is also tied up in the business, so the transition of the business from your ownership to the next owner (whether the next owner is a member of your family or a complete stranger) will greatly impact your family’s financial future.
What additional steps do business owners need to take when planning their estates?
Appoint a Successor
It’s bad enough when survivors squabble over family heirlooms; so you certainly don’t want your family to become embroiled in a fight over who succeeds you as owner of the family business. This is why succession planning and estate planning are intimately linked.
If you don’t plan on leaving your business in the hands of a family member, it’s important that you establish a process for selling your business or selecting an outside successor. You may have a current employee or business associate in mind as your successor, or you may want the business to be sold to an outsider. Whatever you choose, make sure your plans are clearly spelled out so there’s no ambiguity.
Address Any Buy-Sell Agreements
If you have a business co-owner, make sure you address any existing buy-sell agreements. If you have a buy-sell agreement, is that agreement funded by life insurance? Talk with your co-owner, and make sure you’re both on the same page. When you settle on a solution, get your plans down in writing.
Balance Out Your Estate
If you’re leaving your business to one family member, it’s a good idea to make arrangements to leave other family members assets that are comparable in value. For instance, if you leave your business to your daughter, try to leave your son assets that match the value of your business. This soothes any potential hurt feelings after you’re gone and sets the stage for a successful transition of power from you to your successor.
Minimise Potential Tax Liability
Finally, talk with your Wealth Management adviser about steps you can take to minimise the tax liability to your business that your heirs may have to face after your death. There may be things you can do to the structure of the business that will help them to weather a possible financial hit caused by taxes.
For more information about estate planning when you own a business, or to talk about any other estate planning issue, contact us at Altus Financial. We’ll be happy to help you.
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