You’ve spent most of your adult life running your business, and you’re passionate about the company you’ve created. Whether you oversee an international company with twenty branches or a small business in your hometown, you must think about what happens to your business after you pass away. Here are the answers to your top questions about estate planning and succession.
What Is Estate Planning?
All adults must make wills that detail what happens to their money, homes, and children when they die. However, there are numerous issues that arise in estate planning for business owners. You must also consider the fate of your company. Do you want it to continue, or do you want your family to close your business when you pass? Failing to address this question means leaving your family in a difficult situation. For more information on estate planning for business owners, the Finity Law Firm, offers this resource.
Who Runs the Business?
Unless you make a clear succession plan, you don’t get to choose who takes over at your company. If you don’t trust anyone else to perform your job, stipulate that your business shut its doors when you die. To give your rights as the sole proprietor to a child, friend, or current employee, ask your lawyer to help you make a living trust. This document designates the trustee, or the person who manages the trust, as well as the people who receive rights from it, known as the beneficiaries. A third option is to create a buy-sell agreement that gives your business partner control over your company. Set your partner’s buyout price, indicate what role your beneficiaries have after you pass, and note if you do not want certain partners to buy your shares. If you’re not sure which option is best for you, talk to your lawyers and investors as soon as possible.
What Taxes Could Arise?
Depending on your business’s size, location, and purpose, you have to pay a variety of taxes. For example, if you’re technically self-employed, you must pay a 15 percent tax to the federal government. For business owners who make more than 12,400 dollars a year, you must pay the federal income tax, which is progressive. For example, if you’re married and you make between 20,000 and 80,000 dollars a year, you pay a 12 percent tax. However, if you’re married and you make more than 622,000 dollars a year, your income tax is 37 percent.
In addition to these annual taxes, you must plan for estate taxes. Commonly called death taxes, they range from 35 to 50 percent and often leave the owner’s survivors with no viable financial future. To avoid or mitigate these taxes, work with a lawyer to create a trust to protect your assets.
What Changes Must Take Place?
As the creator of your business, you’ve given your company something that no one else can replace: your personality. What happens to your business when you take away your creativity and passion? What changes do you need to prepare for in your estate planning to prevent massive drops in sales or quality? Keep in mind whether you want to divide your responsibilities between several people or add new positions to account for these changes.
What Challenges Do You Predict?
Although creating a business succession plan increases your transition’s smoothness, every change in power is difficult. Spend some time brainstorming about particular challenges your heirs will face. For example, does your industry seem to be heading for an economic recession? If so, consider increasing your savings and diversifying your investments. Is your product line becoming obsolete, or are your competitors creating better versions? Start thinking of new ways to modernize and increase your relevance. Don’t forget about personal issues that interfere with the business’s operations. For example, if your children don’t get along and you’re leaving the business to them, consider appointing a lawyer to serve as their intermediary.
Most people don’t like to think about what happens after they die. However, as a business owner, you have a responsibility to your family and employees to make a plan for your estate. Start thinking about how these questions apply to your company, and then meet with your lawyers to draft your plan.