Stephen Kaplan, P.C.

Estate planning advice for small business owners

It doesn't matter if you're wealthy or only live a modest life; estate planning is for everybody.

Estate planning for business owners is different than for the everyday individual. You may need to account for buy-and-sell agreements, a succession plan, and tax efficiencies, among others.

Below are four steps to help guide you, a business owner, toward the creation of a beneficial estate plan.

1. Create a basic will

Your will determines how you desire your business, and other assets are divided upon your death. You'll also want to prepare the following documents.

  • Power of Attorney: This document appoints an individual to handle all financial information and business-related dealings in the event of your death. You can choose who you would like to manage this information.
  • Healthcare proxy: This document appoints an individual (at your choosing) who will manage your health care decisions if you cannot relay the information yourself. It often occurs that a doctor must determine that you're incapacitated to the point that you cannot communicate any information before allowing your proxy to make decisions on your behalf.

If you fail to prepare a will, state law will determine how your business is divided.

2. Prepare for tax efficiencies

Taxes are a part of life. Thus, you must plan for them. The current federal estate tax is 40%, but only for estates that meet or exceed a value of $11.8 million.

Several states have estate and inheritance (legacy) taxes that you would have to prepare for, but not Texas. Texas does not require an estate tax or inheritance tax. If you live in a state that does enforce estate taxes, prepare accordingly.

For ways to decrease estate and inheritance taxes, speak with a qualified estate planning attorney.

3. Draft a buy-sell contract

If your business has multiple partners, make a buy-sell agreement part of your estate plan.

These contracts address specifics of a business's handling when one of the owners becomes disabled, passes away, retires, or decides to exit the business. These specifics include who can buy the previous owner's shares, at what price, and under certain conditions.

The current owners often have the first crack at the open shares, but a business attorney can draft buy-sell agreements in several ways.

4. Succession planning

Succession plans, unlike your will, are prepared to address how your company will plan for a change in ownership. That ownership can be completed to keep the business within the family or sold to another owner or outside investor.

Your succession plan will include numerous points of emphasis that detail your business, including:

  • All background details
  • A SWOT analysis (strengths, weaknesses, opportunities, and threats)
  • Information about your target markets and competitors
  • Other relevant information you find necessary to relay to your successor

Lastly, you'll want to re-visit your plan annually or if you experience any major life event. The birth of a child, a marriage, or a divorce are a few examples that could cause an update to your estate plan.

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