Why an Estate Plan Is Important for Business Owners

As a start-up business owner, the excitement of starting a new business can place all the focus on new beginnings – how you’re going to create a sustainable enterprise, hire an amazing team, and evolve your product. What happens in the future isn’t always a consideration but thriving business owners know the immense value in estate planning.

Estate planning involves protecting all your valuable assets and allocating them to your wishes, in the case you die or become incapable of managing them. Your estate includes your business. For most people, a business they own accounts for the largest percent of their net worth, which makes ensuring it is cared for so important.

Businesses that gain success at a rapid rate but that don’t have proper planning in place for the future may suffer. Hefty taxes can debilitate a business. Legal battles can halt business production and lead to business failure. If you have family or loved ones you want to ensure care for in the future, protecting your business is essential.

Also, when a business owner dies, their legacy is not the only one that is affected. Companies that grow to employ several or even thousands of employees will need to ensure those workers are protected. Here’s what small business and start-up owners should know about estate planning and how to start the process.

Why Would You Need Estate Planning If You Have a Will?

As one Denver estate planning attorney points out, estate planning is vital if the person planning wants to avoid probate, which is the legal process of proving a will in court. When assets exceed a certain amount, the terms of a will may be contentious and cause legal battles among family members and loved ones.

Another reason why probate can be a negative process is that proceedings are made public. For business owners who wish to keep their operations private, estate planning is essential. As well, legal proceedings can take years to go through, which can damage the production of a business or shut it down altogether.

When Do You Need to Begin the Estate Planning Process?

Estate planning should be a part of the business formation plan from the very beginning, or as soon as possible when the business owner realizes its importance. Serious or fatal injury is a possibility at any time, which is why having a plan in place from the onset can protect start-up owners.

Many businesses in the country are family-owned. The Conway Center for Family Business reports family businesses account for 64 percent of the United States gross domestic product. Lacking estate planning while running a business may mean that key executives in a start-up will need to fight for their business rights if the ownership comes into question. A party the start-up owner never wanted to have ownership may gain it through the courts without estate planning.

In cases where there are multiple start-up business owners, estate planning is especially important to protect each one. Estate planning helps minimize taxes and costs that are associated with business ownership transfer. It also helps ensure that the right parties move on to handle the business in case a partner passes on. A business partner that does not have an estate plan in place, and whose partner passes on, may find themselves suddenly doing business with their deceased partner’s family. This can result in tension and dissolution of the company. Estate planning helps avoid all this.

How Can Business Owners Create an Estate Plan?

An estate planning attorney can assist start-up owners in the estate planning process. A lawyer will help a start-up owner determine how the business will be transitioned upon the owner’s incapacitation or death, such as whether the ownership is sold to someone outside the former owner’s family or passed on to a future generation. Estate planning may also include stipulations for the support and training of successors, delegation of responsibilities, and transition plans for remaining employees.

An estate planning lawyer can also make recommendations to start-up owners to secure protection through means like life insurance, which further helps to protect business assets.

As a start-up owner, you likely have a vivid vision for the state of your business today and far into the future. Estate taxes, court battles and arguments among shareholders at your business are likely not what you envision. If you are intent on growing your business into something whose value can benefit your family and loved ones, and you want to preserve the integrity of the business you’ve built, make sure to protect it by making an estate plan part of your business plan.