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2 important considerations for a business owner’s estate plan

On Behalf of | Mar 27, 2023 | Estate Planning

People often decide to create an estate plan because they own valuable property that they want to share with others when they die and/or because they want to provide for those that depend on them. For business owners, both of those motivations will likely influence their decision to draft or update estate planning documents.

The company that they established has significant financial value and they may feel a sense of duty to their employees in addition to their immediate family members. Proper estate planning is crucial to safeguard the interests of everyone who is affected by someone’s ownership interest in a company. Business owners, in particular, need to address two important considerations during the estate planning process.

1. Who will take over the business?

What happens to the company’s management when an executive or owner dies can often be quite sad. They have not planned ahead to have someone take over their role, and the company ends up floundering and failing.

Succession planning is key for those who want their businesses to remain solvent even if they unexpectedly become unable to continue managing them. Succession planning may involve providing training documents or information about someone’s daily workflow. It may also involve giving candidates hands-on training and identifying people who could step into their role. Proper succession planning helps keep the business operational when someone in leadership dies.

2. What happens to the ownership interest in question?

Whether someone is the majority stakeholder in a closely held company or a sole proprietor, they have to think about not just who will take over their professional position but who will assume their role as owner.

The person they name could potentially sell the business or dissolve it and sell off its assets. Some people will pass the business on to the person they expect to fill their role after they die. Others will separate management from ownership. Taxes, family relationships and numerous other personal considerations will influence what someone wants to do with the ownership of their business.

Addressing one’s responsibilities and resources as a business owner is important during the professional estate planning process if someone wants to maximize their legacy and protect the business they have helped to build.