When it comes to estate planning, it’s easy to lose track of how your different interests intertwine and affect your broader strategy. Case in point: business planning. If you are the owner of a business, it’s not enough to simply prepare a Last Will and Testament, create powers of attorney, and maybe toss in a trust or two. Even if you accomplish all those goals, you will have still missed your target if you fail to use sound business planning to deal with the company that most likely represents a large part of your overall estate wealth.
The problem is that your business and your estate probably aren’t as inseparable as you might like them to be. In most instances, you can’t have a truly successful estate plan if you haven’t taken steps to ensure that your business can be sold for the right price or properly transferred to your heirs when you die. If you die without the right plan in place, your heirs could lose access to a large portion of the income that provides support for the family while they wait for your estate to be settled. To avoid that and other concerns, you need to better understand some business planning basics.
Who Needs to Understand Business Planning?
As the owner of your business, you absolutely need to understand business planning from an estate plan perspective. But your heirs need to understand it too – especially if you intend to transfer ownership to the next generation. After all, if you pass away without a solid plan then there is a good chance that your heirs will be left to manage a business without the right experience or resources to make it work. It’s in your best interests to bring those heirs in during the planning process so that they understand what you are trying to achieve.
How Does Business Planning Impact Estate Planning?
Your estate plan should encompass not only your personal estate planning needs, but your business needs as well. Of necessity, your plan is likely to be more complex when you own a business, because you’ll almost certainly have a larger estate to contend with and must prepare for more complex tax concerns. In addition, you need to deal with issues of business succession, as well as the varied relationships that you’ve created and nurtured over the course of your company’s existence.
Proper business planning can mitigate many of the most worrisome concerns by addressing the following concerns:
- Avoiding the possibility that your business could become a source of contention during any estate resolution process after you die. The last thing you want is to create conflict between family members.
- Ensuring that creditors can be paid off without liquidating the business. This is especially important in cases where you have an heir who wants to continue the business after your death.
- Providing enough resources so that any taxes that are due at your death can be paid with a minimum of fuss.
- Guaranteeing that your business goes to the right person, or gets sold in accordance with your wishes so that the right heirs receive its benefits.
The Need for a Succession Plan
Again, don’t be confused into thinking that your estate plan can be a substitute for your succession plan. They are different things, and an effective succession plan for your business is just one important component of a broader estate plan. Remember, your estate plan is something that is ultimately triggered only when you die. Your succession plan is designed to be used either during life or at death. It can provide for succession at death or serve as an exit plan to enable you to retire.
Your succession plan should include several important features to protect your interests, while also ensuring the viability of the company. It needs a financial plan component that can enable you to enjoy a comfortable retirement lifestyle. It should also have provisions to ensure continuity in the event you either die or become incapacitated before your planned transfer of ownership takes place. That transfer requires two essential elements:
- An ownership transfer plan that successfully transitions ownership from you to your intended heirs; and
- A management plan to make the management transition necessary to ensure a smooth transfer of operational control.
Developing Your Estate Business Plan
There are several ways to begin the process of planning for business succession. As a rule, however, there are several necessary steps that you should take:
- Begin by consulting with important advisors. These include people like your financial advisors and estate planning attorneys. Find out what is possible and what sort of steps you need to take to get things started.
- Figure out your goals. You need to have some idea about what you want to accomplish, since the plan that you ultimately develop will need to be customized to meet those goals.
- Work with your experts to determine the right course of action for your business planning needs.
- Bring in your heirs and other family members if necessary. It’s usually a good idea to let heirs know what to expect when you’ll eventually be transitioning control of the business to them. That also helps to ensure that you’re not leaving the business to someone who doesn’t truly want it.
- Put the plan into action. Your advisors will be able to recommend the timetable for implementation, since some things need to be done at different times and in a specific order.
Of course, that isn’t the end of the process. Your business plan is like other estate planning efforts; it requires ongoing monitoring and updates to work. At Frank & Kraft, Attorneys at Law, our experts can help to guide you through the business planning basics and assist you in developing an effective strategy that accomplishes all your important goals. We’ll ensure that you have the business succession and other estate plan strategies you need to secure your life’s work and fulfill your end-of-life wishes. To find out how our estate and business planning attorneys can help you with your business plan needs, call today at (317) 684-1100 or contact us at our website.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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