Anyone who owns a successful small business knows the importance of planning, but that foresight does not always extend as far as it should. Business owners need to look over the horizon and recognize that they need to have an estate plan in place sooner rather than later, because that plan is actually relevant to the ongoing trajectory of the business.
There are three different scenarios that most small business owners are working with. Some people are engaged in what is referred to as an owner-dependent enterprise, and this term is rather self-explanatory, describing a business that could not go on without the owner’s presence. There are other businesses that can be managed by someone else in the event of the owner’s passing. Planning for the eventual sale of this type of business would be part of the estate strategy.
The third situation would be cases when the owner of the business intends to pass it along to a family member. Planning for this type of succession would require a very different approach than formulating an estate plan for someone who is running an owner-dependent business that will shut its doors after the owner’s death. For one thing, a significant portion of the individual’s assets may well remain invested in the business if it is being passed on to the next generation. For this reason the estate may need to be structured creatively to provide for family members who may not be involved in the operation of the business.
The important thing for small business people to remember is that it is never too soon to begin planning your estate. You never know what is around the next bend, and it important to make sure that your family will be provided for in any eventuality and that your business affairs are in order if a transition was to become necessary.
- Common Mistakes in Estate Planning – IV - June 14, 2023
- Common Mistakes in Estate Planning – Part III - June 7, 2023
- The Not-So Transparent Corporate Transparency Act - May 30, 2023
