Estate Planning When You Own a Family Business
What will happen to your family-owned business after you pass away? Small business owners across the United States put their blood, sweat, and tears into creating successful and profitable businesses. Business owners are often extremely busy trying to run those businesses. Between managing the books, managing employees, and trying to make a profit, few business owners have extra time to put into business succession planning.
Why is Business Succession Planning So Important?
While many business owners have not spent much time thinking about what will happen to their business after they are gone, this topic is extremely important. Engaging in estate planning will help you ensure that your legacy survives and thrives after you step away from your business. In many ways, your business succession plan will help you ensure that your legacy survives long after you are gone. You have built your business up, and it is important to make sure that it survives indefinitely.
If you started a family business, it is even more important to ensure that your business survives and thrives after you are no longer running things. Your siblings, children, or even grandchildren may want to run the family business someday. By spending time conducting business succession planning, you can make sure that your family members have a stable way to make an income for years to come.
Setting Up the Right Structure for Your Business Succession Plan
The first step in business succession involves creating the right legal structure. There are several different types of legal business structures for businesses — sole proprietorship, limited liability corporations (LLC), partnerships, and corporations. The legal status of your entity will play a big role in terms of what happens to your business after your death. At the Law Office of Daniel Hunt, we can evaluate your business as well as your goals and help you make sure that your business is set up with the proper structure.
Create Your Basic Estate Planning Documents
Before you begin diving into creating a detailed business succession plan, it is important to make sure that your personal estate planning tools are in order. If you are a sole proprietor, you can create a last will and testament that states your wishes as to how your business and any other property should be distributed after your death.
You should also create a durable power of attorney that will allow someone whom you appoint to manage your business finances and business transactions should you become incapacitated. We also recommend creating a healthcare directive, that allows another person whom you choose to make medical decisions on your behalf if you are unable to do so.
Should you pass away without a will, the California probate court will divide up your business according to the default laws in your state. A power of attorney, healthcare directive, and will help you ensure that a person you trust can manage your business transactions on your behalf. The specific type of estate plan you need depends on your goals and the type of legal entity of your business.
Choose a Person for Succession
Choosing a person or people to succeed in running your business can be easy or challenging, depending on your situation. For example, if you run a family business and several of your adult children help operate your business, it may be difficult to decide how to pass down your business. Then, you will need to decide whether or not you would like to share with your successors that you will be choosing them to run your business.
For many business owners, it is beneficial to begin training your successor for his or her future role in the businesses. Take time to consider any different events that could become extremely dangerous for the operation of your business. If you know of weak spots in your business, it is best to point those out to your future successor so they can be aware of these pitfalls and avoid them. If your successor is an employee who needs to get more training or more skills, you may want to start that process.
Take Time to Carefully Consider Your Business Succession Plan
Business owners have often worked tirelessly to make their business profitable. Many don’t like to consider what will happen to their business after they’re gone. Giving up control of a business can be an extremely scary thought. However, it’s worse if you know that when you step away, there is no way for your company to succeed in the future because you are lacking a succession process.
At the Law Office of Daniel Hunt, we can help you begin the process of succession planning in stages or phases. The first part of succession planning is to consider important questions, such as “what would happen if someone stepped down tomorrow?” or “what challenges would business leaders need to overcome if I became incapacitated for two months and unable to make any decisions regarding the business?
Next, consider who would be ready to take over your company. Which of your employees has the right type of personality, training, and experience to steer your company in the right direction without you being there? At the Law Office of Daniel Hunt, we understand that these are serious questions. The last step of the process is to work with an experienced estate planning lawyer to set up your business succession plan properly so that your legacy can continue.
Contact Our Experienced Business Succession Lawyers Today
Failing to establish a succession plan for your business can have extremely negative results. The sooner you speak with an experienced estate planning lawyer, the better. At the Law Office of Daniel Hunt, we can help you create a legally sound and effective business succession plan. Whether you own a small family business, a restaurant, a retail store, or any other type of business, we can help. Contact our estate planning lawyers today to schedule your initial consultation.
Daniel Hunt is lead attorney and owner at Law Offices of Daniel Hunt. He is also a California State Bar Certified Legal Specialist in Estate Planning, Trusts & Probate Law.