You’ve most likely dedicated significant time and energy to creating a vision for your business, executing that vision, and even writing up a detailed business plan for the growth of your business. Yet far fewer business owners put the same effort into planning for their company’s continued success following their retirement, incapacity, or death.
However, not planning for the future of your business once you are no longer around to run the company could have disastrous consequences for you, your team, your clients/customers, and your family. And of all the potential risks facing your business, the two that are impossible for you to avoid are your incapacity and death—indeed, no one is immune to old age, illness, or death
Given this liability, creating an estate plan for the continued success of your business should you become incapacitated or when you die is just as critical as any other planning you do for your business, if not more so. The best part is that when you create an estate plan for your business, or a succession plan, it makes your company more resilient, less dependent on you overall, and can greatly improve your ability to take vacations, and have the freedom from your business you probably desire.
WHAT IS A BUSINESS SUCCESSION PLAN?
A business succession plan functions as an estate plan tailored specifically for your business. This comprehensive strategy encompasses various elements, including securing liquidity through life insurance, establishing a buy-sell agreement to facilitate the smooth transition of ownership among partners or shareholders, and crucially, implementing a trust to outline the future management of your business.
Without a trust incorporated into your succession plan, your business may become entangled in an avoidable legal procedure known as probate. This process, detailed further below, can potentially disrupt the ongoing operation of your company and jeopardize the preservation of the assets and legacy you’ve diligently cultivated.
A WILL ALONE IS NOT ENOUGH
When it comes to creating an estate plan, most people typically think of a will. While it’s possible to leave your company to someone in your will, it’s far from the ideal option. That’s because, upon your death, all assets passed through a will must first go through the court process known as probate. And the cost, time, and complexity involved when the court makes decisions about your business assets is completely unnecessary.
During probate, the court oversees your will’s administration to ensure your assets (including your business) are distributed according to your wishes. But probate can take months, or even years, to complete, and it can be quite expensive, which can seriously disrupt your cash flow and your company’s operation. What’s more, probate is a public process, potentially leaving your business affairs open to your competitors.
Furthermore, a will only goes into effect upon your death, so it would do nothing to protect your business should you become incapacitated by illness or injury before your eventual death. In fact, if you only have a will in place (or have no estate plan at all), in the event of your incapacity, your family would have to petition the court for guardianship in order to manage your business as well as your other personal and financial affairs.
Like probate, the court process associated with guardianship in the event of your incapacity can be long and costly. And in the end, whether it’s a family member or professional guardian agency, there’s no guarantee the individual the court ultimately names as guardian would be the best person to run your company.
TRUSTS PROTECT YOUR BUSINESS & FAMILY
To ensure the seamless continuation of your business and avoid the limitations of a will, a highly effective approach is to place your company within a revocable living trust. Unlike wills, living trusts bypass the probate process entirely, swiftly transferring all assets contained within the trust to your chosen individual(s) in the event of your death or incapacity, without the need for court involvement.
By having your business held in trust, you eliminate the delays, costs, and complexities associated with probate or guardianship procedures. Through the trust, you have the flexibility to designate the most suitable individual(s) to manage your company during your absence, whether it’s a temporary incapacity or a permanent passing. Moreover, within the trust framework, you can establish a comprehensive business succession plan, outlining detailed and legally binding instructions for the future management of your business after your departure.
Additionally, trusts offer confidentiality, ensuring that your company’s internal affairs remain private. The transfer of ownership occurs discreetly within the confines of your attorney’s office, preserving your family’s privacy and autonomy throughout the transition process.
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