Here are four simple actions that business owners must take:
Prepare A Trust-Based Estate Plan.
A business owner should have an estate plan that includes (at a minimum) a revocable living trust with a pour-over will, a general durable power of attorney, and an advanced healthcare directive. If there are no estate planning documents in place (a simple will is not good enough), the business owner's estate, including the company, must go through probate. That means that the company must be appraised and the valuation listed on the estate's inventory of assets. People used to go to the courthouse and physically look through files to learn the value of estate assets (such as a company's), but not today. With the convenience of technology and the Internet, probate information is available with a few clicks in many states and counties.
- Establish And Update Buy-Sell Agreements.Business partners should have a buy-sell agreement in place to govern their business relationship. The agreement may require the surviving partner to buy the deceased partner's interest upon his or her death. If this agreement is not consistently reviewed, the remaining partner (or the surviving spouse) may be at a disadvantage that cannot be remedied by proper planning once the deceased partner has died.
- Plan For Incapacity.
Lack of planning is becoming a severe issue for aging business owners (i.e., baby boomers and their parents). If a business owner suffers an injury and is not mentally capable of making decisions or running the company, decisions that require a vote of the shareholders or owners cannot be acted upon unless there is a power of attorney. The power of attorney should be drafted to allow someone to vote the business owner's interest so that issues and opportunities are not missed.
- Make Sure Advisors Communicate.
Attorneys, accountants, insurance agents and financial advisors should all be on the same page as they work to ensure proper planning for their business-owner clients. For example, old insurance policies should be reviewed by all professional advisors (CPAs, attorneys and the insurance agent) to make sure the policies will perform as intended, to confirm the policies are owned and premiums are paid by the correct person/entity, and to ensure beneficiary designations are properly recorded. In some cases it may be appropriate to replace the old policies with better insurance or financial products. Estate plans and financial plans should be reviewed and updated regularly as time passes to ensure they continue to meet the business-owner client's needs.