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3 important estate planning considerations for business owners

On Behalf of | Jun 12, 2024 | Estate Planning

Almost any adult can benefit from creating an estate plan, but some people need proper testamentary documents more than others. Those with dependent family members or high-value resources often have more of a need for comprehensive estate planning than the average working-class individual.

Someone who owns and operates a business could leave a very significant legacy when they die. Doing so requires careful planning ahead of time. Not only do business owners have more of a reason to engage in estate planning than the average person, but they may have a slightly more complex process ahead of them.

What issues does a business owner usually need to address when putting together an estate plan?

Succession planning for their position

One of the first and most important considerations for a business owner is who takes over their role when they die, retire or become incapacitated. A succession plan is a separate document from the basic estate plan. It discusses either the necessary qualifications for someone’s successor or provides a short list of viable candidates, including family members or other employees within the organization. A succession plan helps reduce the strain on the organization when someone in a key position can no longer fulfill their typical duties.

Setting future goals for the business

Perhaps the business owner operates a successful professional practice. They are the only licensed professional working at the business, which means the company is likely to shut down after they retire or die. They may need to have plans in place to facilitate the liquidation and closure of the company. Other times, someone may want their business to persist for generations. They might want to create a trust as a way of ensuring that the party who assumes ownership of the business after they die does not sell off the company or dismantle it for profit. Different long-term goals require unique estate planning strategies.

The transfer of ownership interests

It can be hard to decide who inherits the testator’s interest in the company after their passing. It is possible to grant ownership to someone who may not play a role in managing the company. It is also possible to name multiple different beneficiaries to own the business together.

Developing an effective estate plan requires an understanding of the issues that a testator must address. Thinking carefully about the future of a company and one’s role at the business could help a testator put together an estate plan that addresses both personal and business needs uniquely.