Running a business takes a lot of time, money and dedication. Owners should protect their investments with estate plans to ensure the companies continue operating if they die.
Business owners should consider the following things when creating their estate plans.
1. Keep business separate from personal estate plans
While many aspects of business overflow into owners’ personal lives, creating estate plans solely for the company is ideal. When personal and business assets are part of one estate plan, business partners or disgruntled family members may contest aspects of the plan, causing delays for all parties.
2. Create a buy-sell agreement
When businesses have multiple owners, all parties should develop plans about how the company would operate should one owner die. There are several options to consider:
- The remaining partners can equally absorb the past partner’s shares
- The partner’s shares can go to beneficiaries of their choosing, such as spouses or children
- The unclaimed shares may be available for a new partner
Decisions about moving a company forward following a partner’s death are difficult to make after the fact. By having a clear plan for future operations, all partners know they are abiding by the terms agreed upon by the deceased.
3. Protect partners with life insurance policies
Business owners invest a lot of money to keep their companies running. If one partner dies and leaves large amounts of business debt with their partners, the partners may not be able to purchase the business according to the buy-sell agreements. To prevent this, partners can buy life insurance policies and make the other partners the beneficiaries to cover the purchase cost.
Estate planning for a business ensures the company continues after an owner dies.