Many of us have heard about estate planning for when you pass away. Estate planning allows you to make it clear who should make decisions for your if you become incapacitated and then how to divide your assets once you pass away. Its aim is to provide peace of mind for you and your loved ones. However, many do not think about having an estate plan for their business, which I usually refer to as business estate planning.
Estate planning takes on a whole new dimension when you are a business owner. You need a plan for what will happen to your business in the long-term. How you create a business estate plan depends on your business structure. For example, if you are a sole proprietor, your business assets are essentially the same as your personal assets.
Documents to consider when you are creating your business estate plan include the usual individual documents such as a last will and testament, a living trust, a durable power of attorney (or financial power of attorney), medical power of attorney and an advance healthcare directive (also commonly known as a living will) but also includes documents for your business which should include the operating or company agreement and potentially a buy-sell agreement. Depending on your situation (whether you have business partners or whether you are married) will determine which of the documents you need to consider.
One of the more important documents to have in place for a business owner is a well drafted operating agreement (or company agreement, it has many names depending on your entity structure). A well drafted operating agreement can provide a plan for another person to make property, financial, and other legal decisions on behalf of the business. This is often an over looked step after forming your entity with the Secretary of State. Unfortunately, many people will form the entity with the Secretary of State and then not put together the “rules for the road” for the business, which is best done through the operating agreement.
If you have an online business you may also need to consider a digital estate plan which will allow you to specify what happens to those assets and will include items such as your email accounts, digital documents, photos, blogs and social media accounts.
Let’s discuss some other important reasons why you need to have an estate plan for your business. If you pass away without one, your business may cease to continue or have a significant lapse in operations. It is important make a plan for who will run the business when you are incapacitated or have passed away, instructions for those who will need to take on various other roles and what any other important business associates or partners you may have need to know. When you have a well drafted plan, there’s a better way and a higher chance that your actual wishes will be observed. The last thing business owners intend to do is leave a huge problem for your family and/or remaining staff.
If you have questions or need help with creating an estate plan for yourself or your business, please contact us here at The Hoggatt Law Firm.