Summer means extra time to check up on things you may have pushed to the side during the year. For business owners, this summer period is especially important, as it gives the time to review your asset protection or update partnership agreements.
Estate planning is particularly vital for business owners, as their business is part of the legacy that they’ll continue to leave behind after their passing. Here are some ways that business owners can update their estate plans this summer.
Review Asset Protection
An example of such protection is a succession plan. This is important for any business form, whether a partnership, sole proprietorship, or family-owned business. If you don’t formulate a plan for when you pass on, your business will be without direction, and that can seriously harm your company, if not sink it entirely.
For sole proprietors whose business and personal assets are not separated, you especially need a solid plan of action. An example would be using your personal assets to cover business debts and settle them after you die. You can also pick your successor or, if you plan to sell when you die, find ways to make the sale easy and painless for your heirs.
Family-run businesses might do things differently, choosing to pick heirs based on their level of contribution to the company. You might want those who are most involved to take over the business and buy out the less-involved stockholders. Losing a family member is difficult enough; you want to make sure that the direction you’re giving your family makes this experience less painful.
Update Partnership Agreements
Updating partnership agreements is another area in which business owners (partnerships) can benefit from thorough estate planning. An example of a common tool that partnership agreements use in the event of a death of one of the partners is a buy-sell agreement.
In a buy-sell agreement, the partners establish a plan for the business in the event of the death/incapacitation of one of the owners. In this document, you can tell your partners whether or not you want them to buy out the share you own, block certain people from becoming involved in the business, or sell your share. This requires a lot of communication, but it is worth it to ensure the health of your business.
The “death tax” is just as ominous as it sounds. It is a tax on the value of your business that is due in less than a year of your passing. To prevent your death from turning your business into a must-sell, there are two different types of tax breaks, found in sections 303 and 6166 of the IRS code, which have to do with stock value and deferral. You can use estate planning to take advantage of these sections and save your business’s value after you die.
Business owners, whether they’re proprietors of small, mid-size, or large businesses, all need to stay up on their estate plans, as this diligence will ensure the future growth of their businesses even after they have passed on. Use the extra hours this summer to review your plan and make updates if needed.