Estate planning protects your family’s business. Rather than seeing it as planning for the worst-case scenario, business owners can see it as a form of risk management. Estate planning allows family-owned businesses to protect their assets and legacy from any third parties that may try to capitalize on an owner’s passing.
What Is Estate Planning?
Estate planning prepares the management of your assets, like a business and real estate, for your incapacity or death. For example, if you were suddenly ill and unable to make decisions about your business, an estate plan outlines how you would like designated people to proceed and manage your affairs.
For family-owned businesses, estate planning can help prevent disputes and ensure that the business is passed along into the right hands.
Estate planning includes detailing a clear line of succession, setting clear boundaries, and specifying any particular details you want to take care of in your business after you are no longer able to run it.
Ways Estate Planning Secures the Family Business
The greatest benefit of estate planning for family businesses is a smooth succession of ownership. It is not uncommon for family members and even third-parties to enter disputes about who should rightfully take over.
There also comes a time when the founding generation can find themselves arguing with their heirs over when it’s time to actually hand over the business. An estate plan helps eliminate this issue and offers clear guidelines on when your business becomes someone else’s and what circumstances must be met for that to occur.
Prevents Messy Transitions
Without an estate plan, many family-owned businesses descent into chaos after their founder passes away or becomes incapable of managing the operation. Family members can argue over who is entitled to make different decisions, and this ultimately has a negative effect on the business.
Without proper direction, businesses can ultimately suffer or even collapse because the founder and their successors were unable to come to an agreement over how to manage the operations.
Ensure Successors Stay Onboard
A common issue with business inheritance is that younger generations can feel as though they lack the autonomy to take ownership. They may have decisions overrun by founders or feel so restricted in their own authority that they ultimately decide to leave altogether.
Estate planning helps establish clear boundaries and guidelines to ensure that younger generations understand their role and what level of ownership they need to assume. Having this clarity can ensure that successors continue to stay involved with the business, ensuring the legacy of the company.
Improve Intergenerational Success
Many family-owned businesses are bought by third parties after the founder passes away or becomes medically incapacitated. When this happens, the company ultimately loses the fiber of its character. Instead of being a family-owned and operated establishment, it becomes a corporate-like entity that ultimately devalues the business’s original mission.
It also harms communities to have family-run operations overtaken by corporations or investors. Intergenerational success is built on every generation’s contribution toward the family. Having a business for your loved ones to inherit ultimately supports their well-being and future security.
Estate planning is in place to give clear guidance on how to pass the business along to the next generation. It aims to keep the business in the family, so future generations can continue to build upon the founder’s vision.
Benefits of Estate Planning for Family Businesses
By taking the time to invest in estate planning, business owners can give themselves peace of mind. They can know exactly what will happen to their company when they are no longer present, feeling confident that their loved ones will be taken care of.
More importantly, estate planning helps keep your business aligned with your core values and guiding principles. The planning process lets you offer clear instructions on how to operate the business when you are no longer in charge, and it gives you assurance that your company won’t be radically changed by evolving ownership.
Reduce Tax Burdens
On a more practical note, estate planning can also help alleviate heavy tax burdens for successors. Estate planning helps you plan ahead for expensive taxes related to inheritance, estate and gift taxes. With an expert’s help, you can build effective tax strategies into your estate plan that ultimately reduce and even eliminate some tax burdens entirely for your successors.
Transfer Wealth With Lower Risks
Thanks to an estate plan, you can transfer both physical and financial assets however you’d like. This ultimately allows you to protect them from mishandling or theft and protect your family’s wealth.
What Are the Parts of an Estate Plan?
An estate plan is made up of a will, trust, power of attorney, and success plan for your business. The will includes your last wishes and outlines how you’d like assets distributed. Your will is managed by an executor, who is a third party you appoint to ensure the will is handled how you’d like.
A trust is a legal document that designates a third-party to manage specific assets, like bank accounts or a property. Having a trust can protect assets from probate and hefty taxes.
To have someone make choices on your behalf, you can appoint a power of attorney. This person will be able to make financial, legal, and medical decisions if you are unable to do so.
Finally, a succession plan outlines exactly how you want your business and related assets to be passed on to the next generation of your family. It clearly details what happens to the business and who assumes ownership if you are incapacitated or pass away.
Summary
Estate plans are protective measures that help family-owned businesses stay in the family. They reduce disputes, can lower tax burdens, and ultimately give you peace of mind.
Author Bio:
Emalee Brannon is a Digital Public Relations Specialist with HigherVisibility. After a 4 year enlistment in the Marine Corps, she began her Digital PRcareer that allows her to share her knowledge online. When she is not working she can be found spending time with her family. She can be reached at ebrannon@highervisibility.com
It assists in safeguarding the material and immaterial assets of your family business in addition to your money and personal possessions.
Your passion for your subject is inspiring.