Estate Planning for Business Owners: 9 Steps to Get Started

Estate planning may be the last thing on your mind as you go about running your business. After all, your business likely plays a significant role in your life each day and it can be difficult to imagine a time when you’re no longer part of it. Nonetheless, having an estate plan in place can help your business continue to operate smoothly in your absence. It can also afford your business assets protection from creditors and other legal claims while allowing you to transfer assets to your heirs in a tax-efficient manner.

If you don’t have a succession plan, you’re not alone: 64% of business owners over the age of 50 haven't made one.¹ But regardless of where you are in life, it’s never a bad idea to create an estate plan or update an existing one to ensure your interests and those of your business are protected.

With this in mind, here are seven estate planning steps to consider if you own a business:

1. Identify Your Successor(s)

First and foremost, you’ll want to determine who will take over your business after you’re gone. If you operate a family business, you may want one of your children or another relative to inherit the mantle. Or perhaps you have an employee or business partner who’s ready to take over. If you’d rather spread responsibilities out across a team of executives instead of an individual, that’s an option, too. Assuming you’re looking to preserve your business instead of selling or liquidating it, be sure to communicate your succession plan with all the relevant stakeholders – specifically the individual (or group of individuals) you hope will succeed you.

If you’d prefer to sell or liquidate your business instead of passing it on to someone else, it helps to make that decision well ahead of time so that you have ample time to make the necessary preparations, such as identifying the right buyer.

2. Write a Will

Considering how much you’ve put into your business, you’ll likely want to ensure that it passes into the right hands. To that end, a written will allows you to specify how you’d like your assets to be distributed upon your passing. By making sure your wishes are thoroughly documented, you can help prevent any legal or emotional fallout from occurring between your family members, business partners, or other stakeholders.

Without a written will, the probate court may determine how your assets – business and personal – are divvied up according to state law and there’s no guarantee the court’s decision will align with your interests.

3. Calculate Your Company’s Value

Even if you’re not planning for a sale or liquidation – but particularly if you are – it’s important to know how much your business is worth during the estate planning process. When it comes to selling your business or liquidating parts of it, having an accurate sense of its value will help you set an asking price and negotiate a fair deal. If you’d like to include your business as part of the estate your heirs inherit, there may be crucial tax considerations tied to your company’s valuation.

Calculating your company’s value is something you should do on a regular basis because valuations often change over time.

4. Consider Tax Implications

Managing taxes is an important part of estate planning for business owners because estate taxes can impose a burden on both your business and your heirs. Estate taxes are assessed upon the transfer of assets and they can take a significant chunk out of your estate's value if you’re not proactive.

Luckily, there may be a number of ways to reduce the size of your taxable estate and manage the associated tax obligations, such as claiming deductions for charitable contributions and qualifying business expenses. By working with a tax professional, you may be able to identify more opportunities for saving and tax efficiency.

5. Purchase Life Insurance

Life insurance can be a useful tool for business owners as it can help protect your business, your family, and your assets. In addition to providing a financial safety net for your company should you pass unexpectedly, the right policy may also help support your dependents' lifestyle, pay for estate taxes or provide liquidity for estate planning, and ensure the continuity of your business by providing an injection of funds.

6. Create a Business Continuity Plan

Once you’ve prepared your company’s finances and decided who it will pass to, it’s time to plan for operational continuity. Take a look at each aspect of your business to identify which functions and processes are essential, then make sure each is accounted for in your continuity plan. Ideally, your plan should enable your business to continue running smoothly in your absence. The details of this plan will be specific to your industry and you may benefit from enlisting the help of an advisor or exit planning specialist.

7. Update Your Plan as Necessary

Estate planning isn’t a “set it and forget it” endeavor – you should review the details of your estate plan regularly and make updates as they become necessary. You may experience changes in your personal circumstances or business interests over time, and it's important to ensure that your estate plan remains up-to-date and reflects your current wishes. Outdated estate planning documents can lead to otherwise-avoidable legal or emotional conflict between loved ones and business stakeholders.

8. Communicate With Key Stakeholders

Unless you’re the only employee at your company and you don’t have a family, many people are likely to be impacted by your business decisions. That’s one of the reasons it’s crucial to communicate openly, honestly, and regularly with stakeholders such as family members, business partners, and key employees. By having these conversations ahead of time, you can maintain alignment, work out any disagreements, and prepare your successor (or successors) for the transition. In addition, these stakeholders could have valuable insights or suggestions that can help you create a more effective plan.

9. Partner With an Advisor

The estate planning process can be lengthy and complex, but by partnering with Integrity Financial Planning, you will be better able to protect your interests and ensure a smooth transition for your employees and loved ones. We have extensive experience providing estate planning support for business owners and can help guide you through the process.

Schedule your appointment here for help getting started.

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