Own a business? 5 reasons you need an estate plan
A solid estate plan should include your will, a power of attorney, and a trust. All of these components provide asset protection for your business while you’re alive and after your death.
If you’re a business owner without an estate plan, here’s why your business could be in jeopardy:
A will by itself won’t help if you become incapacitated
If you become ill or incapacitated, a will won’t help you – you need a power of attorney. A power of attorney designates another individual to manage your finances and business dealings while you’re out of commission. Without a power of attorney in place, your business partners or family members might fight for control.
State laws might not mirror your wishes
Each state has different laws that determine how assets are distributed among heirs. Your state’s laws might differ from your wishes. Without an estate plan, you can’t be certain your wishes will be followed.
Have a disabled heir? You need a trust
If you have a family member with a disability, the best way to take care of them is to set them up with a trust. Mushkatel, Robbins & Becker point out that a special needs trust will give a disabled person access to funds without compromising their government assistance and benefits.
An estate plan can help your heirs pay estate taxes
Say you decide to leave your business to your children or another family member to give them a reliable source of income. There’s no guarantee they will be able to run your business even if they want to. Your heirs will need to pay estate taxes, and unless they’re already rich, they will need to sell the business just to pay the taxes.
An estate plan can provide instruction to your heirs for how they can keep the business without having to go through a fire sale to pay estate taxes. They may not know they have a choice.
Section 303 reduces taxes paid on stock distribution
Section 303 allows your estate to redeem company stocks at a lower tax rate if your stock value is more than 35% of your entire estate.
Section 6166 provides time for the business to earn money to cover estate taxes
If your heirs can’t afford to pay estate taxes out of their own pockets, they might need to sell the business. However, if your business qualifies, section 6166 allows your heirs to run the business and earn the money to cover estate taxes.
Section 6166 provides estate tax deferral for business owners when more than 35% of adjusted gross estate comes from the business’ interests. This tax break allows your executor to pay estate tax over a ten-year period. If your estate qualifies under Section 6166, the first payment isn’t due for five years.
Family members could end up fighting
If you’re running a family business, some of your heirs might be involved in your business while others aren’t. You might want to divide your business assets based on each person’s contribution to the business. Or, you may want everything to go to a child who has never been involved in the business.
How you wish to divide your business assets is up to you, but without an estate plan that details exactly how you want your business assets to be divided, family members could potentially fight over their fair share.
Don’t leave things up to chance
You never know how people will behave in the case of your death. If you’ve built a successful business, your assets should be distributed exactly the way you want them to be distributed. Start creating your estate plan today and protect your assets from falling into the wrong hands.