You may have a will or a trust that covers the disposition of your personal assets after you die. If you own a small business, those documents are not enough. There must be a separate plan put in place to insure that your business will continue when you’re gone.
It’s a good idea to consult an attorney but, before you do, you should ask yourself and those involved in the business with you the following questions:
- After your death, do you want the business to continue?
- Who do you want to run the business?
- Does that person want to run the business or have the skills to do so?
- If you have children, do you want one running the business with the other(s) sharing in the profits?
- Do you have partners to consider?
- What’s the best way to transfer ownership?
If your spouse or children are going to take over the business, transferring your interest to them is fairly simple. It can be more complicated if you want someone outside of your family to run the business. Whoever you decide is the right person to manage your company, you definitely should make plans that will allow the business to continue running while avoiding probate proceedings.
Two common ways to transfer business assets and operations are:
- Key Man Insurance: Either the business takes out an insurance policy on each owner’s life or a cross-purchase arrangement occurs in which each partner takes out life insurance for each other, using the proceeds to purchase your share when you die. This ensures the company avoids a drain on the business’s cash and allows for an injection of cash in order to fulfill a buy/sell agreement.
- Buy/Sell Agreement: This agreement can be automatically triggered upon your death and provide that your interest in the business can be acquired from your estate, leaving your beneficiaries with the proceeds from the sale. This allows your business to continue running smoothly, with the same people in control, except for you.
However you decide to plan for the continuation of your small business, the important thing is to make a plan now, before it’s too late.
For more information about estate and other end of life planning, go to www.diesmart.com.