Learn about the basics of estate planning. Your small business will profit from early planning. Start today and feel secure as your business grows.
What is estate planning?
The term estate planning is misleading. People resist thinking about it for two reasons.
1) They don’t want to think about dying
Estate planning is not limited to what happens after you die. It’s also about the present. Estate planning includes protecting your income should disability occur or legal issues arise.
2) They don’t believe they have an estate. They associate the word estate with wealth.
You don’t need to have a mansion and a butler to have an estate. In legal terms, if you die with a $100 in your bank account, you have an estate. Someone is going to get that $100 after you die.
Instead of estate planning, we could call it, “Protecting your hard work.”
Would that motivate you to get started?
That’s all estate planning is: getting your ducks in a row to protect what you build.
Big, superhero ducks lined up and ready to take flight. Taking you under their titanium wings and protecting your work with legal documents.
What are the basics of estate planning?
Begin when feelings are neutral
If you are stable and healthy, it’s the best time to plan. You are alive and lucid. Worry and grief are not consuming interested parties.
Serious illness, injury, or death, in any family, causes problems.
They bring emotional skeletons jangling out of every closet. Even in families, loving and stable, potential problems lurk. Ask anyone who’s been through it.
A disagreement may start over a major or minor issue.
Dad’s favorite hammer, grandma’s box of buttons, or a cast-iron skillet can lead to hysterics.
Drama is often not about things of value to anyone outside the immediate circle. Emotions run high.
Make as many decisions as you can now, to prevent chaos. It’s the kindest thing you can do.
It’s also the right thing to do if you have employees. If you’re confident your business can continue without you, make sure it’s possible.
Succession planning
If you can’t run your business, does a business partner, child or spouse want to? If so, are they capable? You’ll need to discuss and decide upon it.
Your decision will influence many aspects of your estate plan.
Liability insurance
From day one, you should protect your company with liability insurance. Your business’ size and type determine your insurance needs.
A landscaping firm could be at risk of workplace injuries or damaging customers’ properties. Their company-owned truck could cause a fatal accident.
An artisan soap-maker could be liable if they include an allergen in their soap.
Physical business locations have the potential for a variety of mishaps.
Even virtual, information-based businesses should look into errors and omissions insurance.
A lawsuit can destroy business and personal finances.
Disability insurance
In the event of an injury, or illness can your business carry on? Will you have any income?
Disability insurance is critical to protect yourself from a sudden loss of income.
No one likes to think about a sudden, devastating life reversal. But, it happens.
Will your loved ones need to raise money if they lose your income? Imagine their fundraising Facebook post. Act accordingly.
Some disability insurance plans can keep you financially whole until retirement age.
Life insurance
In the event of your death, life insurance pays a benefit to whomever you choose. The minimum amount should equal the current value of your business.
If they want to take over your business, leave your spouse at least three years of operating costs.
Business partners may choose something called crisscross insurance. They insure each other for the value of the business. They also guarantee each partner the first right to buy the business.
The partners have life insurance policies for the total value of their company. They also have the first right to buy it. The remaining partner can keep the business without any financial hardship or legal battles.
Investment
Estate planners can help determine the correct investments to make based on your income, age, and risk tolerance.
Taxes
Estate planning includes advice on the best current way to file your taxes. It also suggests ways to protect assets from taxation after your death.
Trusts
Strong trusts shelter your business and family from various taxes and liabilities.
Trusts are complex and have many variations beyond the scope of this article. They may also include your healthcare wishes should you become incapacitated.
Wills
An estate plan is best for your business and family. Create a will if you’re not ready to create an estate plan. A will provides direction to your surviving loved ones.
If you die without a will, a judge will appoint a neutral administrator to distribute your assets. At that point, if you disagree, your only possible recourse will be haunting.
Instead, investigate online low-cost and no-cost options to create a will.
How do I find a reputable estate planner?
Estate planners, also known as financial planners, vary in their backgrounds. They may have experience as insurance agents, accountants, lawyers, or stockbrokers.
Find a local expert to help you. Tax, probate, and insurance laws vary at the local, state, and federal levels.
Find a certified financial planner (CFP®) here. CFPs receive certification from the non-profit Certified Financial Planner Board of Standards. This organization also has a learning center for consumers you can visit.
Estate planning is something most business owners put off. A strong estate plan should relieve stress. Once your estate plan is in place, you can put all your focus on growing your business.
Please note: this material is for informational purposes only. We hope you will start thinking about estate planning. Do your research and contact professionals for help.
