The importance of estate planning for business owners

It’s critical that business owners have a documented estate plan. In the event of an emergency — a situation involving their sudden death or disability — it’s this plan that determines the transfer or control or ownership of their assets, and sometimes their company.

“Businesses will take time to put together buy-sell agreements and their operating agreements, but they often won’t take that extra step to protect themselves personally,” says Lynda Doland, CPA, MT, director at Corrigan Krause. “Estate planning involves difficult conversations, which is part of why people put it off. But these conversations are necessary to ensure their business, their wealth and their legacy are protected.”

Smart Business spoke with Doland about the importance of estate planning for business owners.

How common is it for business owners to have an estate plan?

It’s more common that business owners don’t have their house in order — they tend to drag their feet on estate planning largely because they either don’t want to think about it or they’re so focused on their business that they overlook it.
However, once a business owner experiences the death of a loved one, especially if they’re involved in unwinding the personal estate of someone who failed to plan for that inevitability, they’re often motivated to get their own house in order.

Why does an estate plan matter?

The risk for business owners who don’t do estate planning is that their assets will not end up where they’d prefer that they go. Further, when business owners fail to make plans for their estate, their company can be put in a position where a spouse, because of a sudden death or disability, is in control of a business that they know nothing about running. That can create issues if there are partners in the business who now have a minority position to a former partner’s spouse.

Not having a plan in place means that a business owner is not covered for disability. So, in the event that they become disabled, it’d be unclear who they want to step into their shoes and run the business, which can leave a mess for those trying to figure it out. Spending the time now decreases the time that someone else has to spend down the road making critical decisions for a person’s business and broader estate.

Not only is it important for a business owner to have their estate in order, it’s also important for key employees to have arrangements in place — if something were to happen to them that meant they could no longer contribute to the business, there should be plans for how to continue on without them. Life insurance can help a business owner in this circumstance pay out to the family anything that they’re owed, and even help mitigate the costs of finding a replacement.

How might owners get started on an estate plan?

One exercise that could help owners get started on their estate planning is through what are sometimes called ‘plane crash meetings.’ During these sessions, business owners are asked what would happen to all of their assets if they died suddenly, by way of an unexpected accident, for instance. Most don’t know. When that’s the case, their assets might end up outside the control of the people they hope would be in charge. That exercise can also bring to their attention how assets are titled, because if they’re titled incorrectly, there will certainly be issues. And when an estate plan is not in place, probate fees could come into play and they’re often a lot larger than many expect.

Those who don’t have an estate plan but want one could start with their accountant or an attorney because these plans involve a lot of legal, financial and tax complexity. It’s also important to work with professionals who have experience with estate planning.

Business owners should make the time to get their affairs in order. Even though these can be difficult conversations with tough choices to make, those who are able to finalize their plans are relieved once they have everything in place. ●

INSIGHTS Accounting is brought to you by Corrigan Krause

Lynda Doland



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