What Business is it of Business Owner to Consider Estate Planning?
Why should a busy business owner worry about estate planning? What is estate planning anyway?
Estate planning involves the legal framework that can protect a business when a business owner becomes severely ill or dies. For example, if a business owner becomes ill or incapacitated, how does the business continue doing business? For a sole proprietorship, an agent under a durable power of attorney can run the business. However, if the business is a corporation or an LLC, then most banks or other business will not recognize the agent. Instead, they often will require a court appointed conservator before continuing to do business where the owner has become ill or incapacitated.
If the owner had a revocable living trust and the business ownership (such as shares of stock) were held in the name of the trust, then the successor trustee could step in and protect the business. The Successor Trustee’s authority is more traditionally recognized when a corporation or LLC is involved. That is, banks and other businesses will not require a court appointed conservator when a key shareholder becomes ill or incapacitated.
When the court is involved, then the illness of the business owner becomes public record. The business’ finances become a matter for the Court to review. A conservatorship results in the loss of privacy, additional cost and opens the business up to the attention of family members that perhaps have no business being involved.
Estate planning for a business owner is also important to clarify how the business will be distributed upon the business owner’s death. To avoid court involvement and probate when a business owner dies, a trust is necessary. The business owner can list who will be the Successor Trustee, to collect the assets, complete the business operations and then distribute the business to the designated family members and beneficiaries or sell the business and distribute the proceeds.
A buy-sell agreement is helpful when a business is owned by more than one person or family. A buy-sell agreement usually involves the business purchasing life insurance so the business can buy out the deceased owner’s share and the remaining owners can continue the business. This can protect the business owner’s spouse to make sure the surviving spouse has sufficient funds for support instead of relying on the business partners to continue the business and provide the spouse an income stream.
Further, the business owner needs to be sure to have a health care power of attorney so that the proper persons are identified to take care of the business owners’ health care. If the business owner becomes seriously ill or incapacitated without a duly appointed health care agent, then there is no one with authority to assure proper health care for all the owner’s needs. If the business owner cannot get proper health care, then recovery can be delayed which can have a detrimental effect on the business.