Well, it’s finally happening. It appears (knock on wood) that life is going back to normal after the COVID-19 epidemic. While there’s a good chance this disease won’t ever be fully eradicated, things are in control enough to allow places to open back up, even without masks.
That is welcome news for small business owners, who have had it rough throughout the pandemic. Now that things are nearly back to semi-normal, are you prepared? Go through this checklist of paperwork for your business. Though not exhaustive, it will give you an idea of what you should have, as far as estate planning goes.
A will and basic estate plan are a good place to start. A will talks about your wishes for what you want to have happen to your assets after you die. A power of attorney and healthcare directive, though both different, concern decision-making when you’re incapacitated. Without a last will and testament, the business will be divvied up according to your state’s laws. Having a plan in place ensures that someone you trust will inherit business property (or, at least, that your business’ fate will be what you want).
A big part of estate planning involves tax laws. These laws are constantly changing, so you’ll be knocking on your lawyer’s and financial advisor’s door pretty regularly. Estate planning can help you legally minimize your tax burden. For example, you might be able to create a family limited partnership or divide your estate into several trusts as a way to minimize your burden. Even if you think that inheritance or estate taxes don’t apply to you, other considerations, related to your 401(k) are still at play.
Family-Owned Company Issues
Though family-owned businesses have their benefits, they also have their downsides. There are special concerns about keeping the business’ assets in the bloodline, and you don’t see these types of concerns when businesses aren’t family-owned. An estate planning attorney can help you quash fights and conflicts. Sometimes, having a third-party step in is exactly what FOBs need. Especially in today’s delicate, post-COVID times, you need to make sure you hit the ground running, not bogged down by familial drama.
One must-have for businesses is an owner with a life insurance policy. Usually, small business owners need to buy two life/disability policies: one that names their family as the beneficiary and one that names their business as the beneficiary. If you die, the policy will provide an income stream that will keep your company afloat in that difficult time.
Term life insurance covers you if your death occurs within a certain time frame, while whole life insurance, also known as permanent life insurance, is an investment, and it will remain in place for the duration of your life. You can add disability coverage separately or purchase it as a rider.
Key person insurance works similarly to personal life insurance, but your company is the beneficiary, as opposed to a family member. If a “key person” in the business (generally the owner) becomes disabled or dies, the business will get a payout. Usually, the payout s equal to a multiple of the key person’s salary or the company’s profits. Key person insurance is often a lifesaver for mom-and-pop business, where the owner is critical to the day-to-day operations and success of the business.
Of course, we can’t talk about estate planning for a business without discussing a succession plan. Your succession plan will delineate how your company and family will prepare for an ownership transition. The idea behind succession planning is simple: keep the business running until the new owner takes over or inherits the company. The written plan will contain how-to instructions and information about your business’ background, among other important details.
Update When Needed
Once you’ve gotten your business’ estate plan squared away and included all the documents you need to include, don’t just leave it and forget it ever existed. Update and review your estate plan every few years, and take a look at it again whenever you, your family, or your business experience a major life change.
Contact an estate planning attorney today to review your current plan and ensure that it is comprehensive. As the country opens back up, remember that preparation is key.