Why Every Business Owner Should Have an Estate Plan

May 16, 2024 | Estates Planning and Asset Protection

We plan for everything in business— new product launches, the perfect marketing strategy, the impact of upcoming trends on your business goals, and how many coffees we’ll need to power through afternoon meetings. 

But one area often flies under the radar: estate planning

As a business owner, you likely have your operational plans in place, and maybe even a succession plan. But your estate plan is equally important—it’s crucial for your business’s future, the legacy you want to leave behind, and how you account for the needs of loved ones after you pass away.

4 reasons every business owner should have an estate plan

A comprehensive, well-thought-out estate plan ensures all your hard work pays off how you envisioned it. It allows you to provide for your loved ones and protect the legacy you’ve worked hard to create. 

And for most business owners, your business is part of that legacy. Whether you plan to pass down the family business to your children or you want to preserve investments your business made in the community, an estate plan helps facilitate these goals. 

The benefits don’t end there, though. 

1. An estate plan protects your business assets

Without an estate plan, your assets get divided after you pass on according to state intestacy laws. As a business owner, this can get complicated, especially if you don’t have a clear operating plan or succession plan in place. That means your interest may get passed to someone you didn’t intend it to, which can change the future of your business irrevocably.

On the other hand, factoring your business into your estate plan gives you the opportunity to explore asset protection strategies like: 

  • Limited liabilities companies (LLCs) 
  • Trusts 
  • Family limited partnerships 
  • Insurance policies 
  • Corporations 
  • Buy-sell agreements

Even if you’ve already implemented certain measures—say, your business has already been incorporated—those measures can be worked into your estate plan to provide greater assurance. 

2. It adds (or enhances) a succession plan

You can have a succession plan without an estate plan, and you can have an estate plan without a succession plan. They are, after all, different plans. Your succession plan deals with the whos and hows of running your business. Your estate plan deals with how your assets are passed down to your beneficiaries. 

But hear us out: your succession plan will be stronger with an estate plan. 

Having a clear business succession plan helps smooth the transition of ownership and management of your business. It minimizes the financial impact of that transition and preserves shareholder confidence.  

It’s also good for your beneficiaries. When your succession plan is clear and well constructed, it can limit conflicts between family members and/or business partners by laying out your expectations and how you’d like them to be followed. 

3. It minimizes taxes and expenses

No business owner wants to lose more of their hard-earned money than they have to. But if left unchecked, taxes can quickly accumulate and cost your business thousands of dollars.

That’s why it’s so important to have a robust estate plan. It can use tools such as:

  • Gifting and charitable giving strategies
  • Leveraging entity structures 
  • Estate freezing 
  • Capital gains tax strategies 

These tools help to ensure that wealth is transferred efficiently and to reduce the tax burden on the estate and its beneficiaries.

It’s best to partner with a local estate planning attorney experienced in working with business owners so you can have peace of mind knowing that your plan complies with governing laws.

4. It helps you avoid probate 

Without an estate plan, many assets must go through the probate process. But why is that so bad?

Well, the probate process can incur substantial fees and taxes that get passed on to your loved ones. And since the court decides what happens to your business, it often leads to family disputes. 

And even if taxes, fees, and family disputes aren’t a problem, probate can still be time-consuming; even a simple and uncontested estate can take several months to resolve. If there are disputes or complications, it can take up to a year or longer. 

For a business with operations to keep moving, this can be problematic. 

However, estate plans can leverage different types of trusts that help you avoid the probate process completely. That means you can transfer assets quickly and privately according to your wishes and avoid unnecessary delays.

Breaking down estate plans for business owners

So, what does an estate plan for business owners typically include? Here are the major components:

  • Last will and testament: A legal document outlining your wishes regarding asset distribution and the care of any minor children.
  • Trust(s): Arrangements that allow a third party called a trustee to hold assets on behalf of your beneficiaries. These tools help you bypass probate, protect your assets, and reduce tax liability.
  • Power of Attorney (POA): A legal document granting someone the authority to make legal and financial decisions for you if you can’t do so.
  • Buy-sell agreement: A document that outlines what happens to an owner’s share of the business upon their death, disability, or retirement.
  • Succession plan: A written plan, typically included in the operating agreement, outlining  the strategy for passing on operations and leadership roles.

Other documents may include healthcare directives, life insurance policies, guardianship designations, a letter of intent, and your financial documents.

How an attorney can help

It takes a great deal of time and attention to detail to create a comprehensive estate plan tailored to your business and personal situation. Plus, even the smallest mistake can potentially lead to disrupted operations and even business closure. 

Working with an experienced estate planning attorney takes the burden off your shoulders and gives you peace of mind by:

  • Providing a tailored estate plan for maximum protection for your business and loved ones.
  • Using deep knowledge of current estate and business laws in your state to ensure compliance and proper execution.
  • Using tools and strategies to protect your business and personal assets so they get distributed according to your wishes.
  • Working with business attorneys to create ironclad operating agreements, succession plans, and buy-sell agreements to keep your business running smoothly after you’re gone.
  • Setting up trusts and other estate planning tools to help you avoid probate and transfer your assets to your beneficiaries smoothly.
  • Establishing guardianships to protect and provide for your family members, especially for minor children or dependents with special needs

Your business, personal circumstances, and local laws can change often, so your estate plan also needs to be reviewed and updated periodically to keep it compliant. An estate planning attorney can regularly review and update your estate plan to keep it compliant and aligned with your wishes. 

Protect your legacy with an experienced estate planning attorney

Crafting a comprehensive estate plan helps you secure your legacy, protect your hard-earned assets, and safeguard your business and your family’s future. But it can be overwhelming for even the most experienced and successful business owners. 

The law firm of Shann M. Chaudhry, Esq., Attorney at Law, PLLC, is here to help! Our team of experienced planning attorneys specializes in working with business owners to create robust estate plans tailored to their unique needs. 

Contact us today to schedule your consultation and see how we can help you protect the things that matter most.

You may also like
Common Misconceptions About Miller Trusts

Common Misconceptions About Miller Trusts

In today's society, misconceptions abound. Consider the following:  Twinkies don't actually have an infinite shelf life—it's actually approximately 25 days  Benjamin Franklin didn't actually suggest the wild turkey be used as a symbol of the United States, but he did...

What to Know About ABLE Accounts and Special Needs Trusts

What to Know About ABLE Accounts and Special Needs Trusts

I've been practicing law in Texas for more than 16 years. As an estate planning attorney who regularly deals with special needs trusts, I am familiar with the difficulties that families encounter when attempting to plan for their disabled loved ones' future. Two...

Join the conversation