Protecting your small business through estate planning is a critical step that should be taken by anyone who wants to control who will take over the business after retirement, disability or death. Making plans can also ensure that your loved ones inherit the business’ financial success.
While estate planning for your small business may seem daunting, it can be easily understood when explained in basic English. That’s exactly what our Florida estate planning attorneys will try to achieve in this blog!
Table of Contents
The Steps to Protecting Your Small Business With Estate Planning
- Create a will and estate plan
- Contact an estate planning attorney
- Consider tax planning
- Resolve family-owned business issues
- Buy life insurance and disability insurance
- Create succession plan
- Speak to the affected people
- Keep your small business estate plan updated
Estate planning for a small business requires detailed thinking and various hypotheticals. You should not attempt to put an estate plan together alone. In the world of business, one mistake can leave the door open for liability. That’s the last thing your surviving family needs when you pass away. Instead, you should consult an estate planning attorney who has significant experience.
1. Create a Will and Estate Plan
The first critical step you should take is to create a basic estate plan and, most importantly, a will.
- Create a will that records your wishes for how your small business and assets should be distributed after your death.
- Appoint a ‘power of attorney’, who will manage your finances and business decisions if you’re incapacitated.
- Appoint a ‘healthcare directive’, who will make medical decisions if you no longer can alone (such as treatment and life support).
If you don’t have a will, your business will be distributed according to Florida’s intestate laws. But by having a will, you can control how the business is divided up and dealt with after your death or incapacitation.
In the will, you should also appoint a ‘power of attorney’. This individual gains authorization to make financial and business decisions on your behalf.
Doing these steps will ensure you have a basic estate plan. After this, you should consult your estate planning lawyer to cover deeper issues.
For example, it may suit your circumstances to place your assets into a trust and title business assets in the trust’s name. Doing so may make for a smooth transition for your surviving spouse. These types of decisions will vary with each small business owner.
2. Consider Tax Planning
Tax planning is an often overlooked part of small business estate planning.
There may be legal ways you can restructure your business to minimize the taxes your surviving loved ones will face. Tax laws are constantly changing, however, and naturally, legally sensitive. You should always speak to an estate planning attorney specializing in tax planning – both for your safety and your financial benefit.
The U.S. government currently imposes an estate tax, which must come from your estate before your beneficiaries receive their share.
However, the current 40% federal estate tax only applies to estates worth over $11.18 million. Which tends to mean a small business is unaffected. Florida currently has no state inheritance tax.
Other tax considerations may be required. For example, many of your assets may be in a retirement account. These will pass to your beneficiaries but later be taxed on withdrawal.
An estate planning attorney may be able to prevent this scenario from arising.
3. Resolve Family Owned Business Issues
Estate planning for small businesses that are family-owned comes with a range of unique issues. For example, there may be tension and fights over who will become the owner once you retire or pass away.
There are plenty of solutions. For example, you can plan for all the assets to pass to your future owner of choice. This can prevent any in-family fights that could put the family and business at risk.
You should also use estate planning to ensure the assets remain in the family, if you wish. When there are other external business partners, there is a risk that this doesn’t happen.
This is an often overlooked estate planning step, but one that you should not neglect. As always, consult an estate planning attorney before making any decisions legally binding.
4. Buy Life Insurance and Disability Insurance
Every small business owner should have life insurance or disability insurance. It’s critical as it will ensure your family has a source of income if you pass away or become disabled.
There are two common types of policies you can buy:
- Personal life and disability insurance with your family as the named beneficiary.
- Key Person Life and disability insurance with the business as the named beneficiary.
An estate planning attorney can help you determine how much coverage you need to purchase.
5. Create a Succession Plan
A succession plan is often considered succession planning rather than estate planning, but should still be addressed. Your will should state who you want to receive after your death. Most importantly for your small business, you should state who you want to run your business.
This is a critical step because it can ensure the business runs smoothly or is prepared for a sale without any hiccups.
Succession plans contain a multitude of hypothetical and business details and should be assisted by an estate planning attorney.
Note: Keep your succession plan documents consistent with your will – to prevent invalid documents and expensive litigation later.
6. Speak to the Affected People
A key step in any mature and successful small business estate planning is to discuss your plans with the affected people and parties.
These may be tough conversations with uncomfortable truths. But doing so can prevent fights in the future and ultimately prevent pain when someone assumes something that isn’t true.
In many cases, it can be wise to have the entire family sit down with your estate planning lawyer so everyone is on the same page with the same vision.
7. Keep Your Small Business Estate Plans Updated
The number one mistake after small business owners create their estate plan is to forget about it.
You must keep it updated. Any time there are laws changes, family changes, business changes or changes to your vision and wishes – update it!
If you don’t, someone important (such as a grandchild) may miss out on an inheritance, or an ex-spouse may still be listed in the will.
Having an estate planning attorney on your side can ensure you keep up with the transitions in your life and the law.
Contact an Estate Planning Attorney for Small Businesses
The most important and final step is to contact an estate planning attorney. Our Florida estate planning attorneys can help with every step from tax planning and will drafting to litigation or trusts.
We’re just a phone call away,
Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a will to avoid complications for your family after your death.
Schedule a free consultation today to get started.