Estate Planning For Business Owners

By Todd Sehhat, Esq.

When running a business, some owners can be so busy with the day-to-day operations that they fail to consider the importance of proper estate planning. Estate planning is a critical factor when considering the long-term goals of any business, especially in the case of the untimely demise or incapacitation of the owner. Having proper estate planning also allows owners to choose who will take over the mantle next.

Here are three key components that can assist business owners in planning for the future.

• Estate Planning Documents.  Every business owner should have some sort of personal estate planning in place. If you are a sole proprietor, then the importance of estate planning is further amplified. This is not to say the documents that will be discussed are not important when there are multiple owners. However, with businesses that have sole owners, many times there are no business succession documents in place to identify a successor. The documents to consider for  business estate planning include:

Last Will and Testament. If your assets are owned in your individual name, then a will is extremely important. A will allows you to decide who you wish to pass your assets to once you pass away. Without a will, you run the risk of having those assets pass via intestate succession. This is extremely problematic especially if the business owner has minor children. In the state of Georgia, if an individual passes away without a will and leaves a spouse and children, then the spouse and children will usually receive equal shares, however, at no point can a spouse receive less than 1/3 of the estate. This means that a minor child could unexpectedly become an owner in the business…a catastrophic result.

Revocable Living Trust. You also have the option of creating a revocable living trust during your lifetime. This accomplishes two important goals: (i) if the business owner become incapacitated, the trustee of the revocable living trust can continue operating the business on behalf of the incapacitated owner, and (ii) upon your passing, your beneficiaries can avoid probate. The trust will control where your property goes, and as long as it was properly funded, your family can do away with having to go to the court to probate your estate.

Financial Power of Attorney. A financial power of attorney allows you to nominate someone to make financial decisions on your behalf when you are unable to do so.

Advance Healthcare Directive. In this state of Georgia, this document consists of two main parts (i) a medical power of attorney and (ii) a living will. The former will allow someone to make medical decisions on your behalf when you are unable to do so. The latter sets forth the sort of medical treatment you desire when you are in an end-of-life situation.

• Business Succession Planning. One of the primary ways to achieve business succession planning is to have a buy-sell agreement. This tends to make more sense when there are two or more owners. These agreements accomplish several goals, including but not limited to (1) placing restrictions on transference of ownership; (2) including provisions to allow the surviving owner to pay the deceased owner’s beneficiaries for all of the deceased owner’s interest in the business; and/or (3) including provisions allowing non-incapacitated owners to purchase the interest in the business from a recently incapacitated owner.

When thinking of business succession planning, it is important to keep in mind your primary goals. For some, they would want their ownership interest to pass to a family member, while others wish for their ownership interest to pass to their surviving business partner. Many times, your business partner may even be your family member. However, implementing this planning now can give you and your family peace of mind in the future.

• Planning with Life Insurance. When you have a business, it is important that you are cognizant of the benefits of life insurance and disability insurance. Many times, businesses do not have the liquidity to purchase the ownership interest of someone who has passed away. As such, business owners have the opportunity to take out policies in their names and list their business partners as the beneficiaries. Other times, you may see the business take out a policy on an owner with the business as the beneficiary. This is done so that the business or the surviving partners have the necessary liquidity to purchase the deceased owner’s interest. This also helps ensure the deceased owner’s beneficiaries receive compensation for the deceased owner’s business interest.Finally, having a buy-sell agreement, as discussed above, funded with life insurance can reduce the stress placed upon the decedent’s family and the surviving partner(s) because neither party will worry about having family members as either partners or creditors of the business. As was previously stated, this is because life insurance provides the partners and the business with liquidity they may not have previously had.

Estate planning, business succession planning, and life insurance are three very important considerations for every business owner. At Hoffman & Associates, our attorneys are here to help with all of your business and estate planning needs. If you have any questions, please contact us directly at 404-255-7400 or info@hoffmanestatelaw.com.