Important Estate Planning Topics for Small Business Owners

A small business owner searches for estate planning information.

There are many things to consider as a small business owner, and estate planning should be one of them. This surprises some people, but if you own a business, it’s necessary to think about what would happen if you passed on or became incapacitated or unable to run the business. How would production continue? Would your employees get their paychecks on time? Who would run operations and make crucial business decisions? Who would inherit the business or your share of it?

A large business would already have responsibility divided among many people, a board of directors to make important decisions, and processes like payroll would likely be automated. But smaller, growing businesses might not have these safeguards in place yet. For this reason, consulting an estate planning attorney is recommended. The Van Dyck Law Group’s experienced attorneys can help you plan for your company’s continued success according to your wishes. Please contact us for a consultation to learn more about your estate planning options and how to protect your company.

Here are some frequently asked questions about estate planning for small business owners:

Should I Consider Estate Planning When Starting a Business?

Yes. In fact, this is the ideal time to think about estate planning for business owners. Before you file the paperwork to establish your company, think carefully about the following questions, and discuss them with your future business partners if you will have co-owners:

Who will manage the business, and how will decisions be made?
If you have partners, how will disagreements be settled?
In what circumstances do you and your partners have the right to transfer their interests? Can they be transferred to outside interests?
How will ownership interests be transferred if you or a co-owner have to withdraw from the business, voluntarily or not?
How will interests be transferred when an owner dies or becomes disabled and can’t continue their work?
What will be the payment terms when interests are transferred?

Once you have answers to these questions, discuss them with your attorney. They can help you draw up an ownership agreement for you and your partners to sign that will lay out a roadmap for handling potential issues in the future. Additionally, your lawyer can draft a buy-sell agreement, which sets out a predetermined price or formula for arriving at a price in the event that an owner or their heirs want to sell their stake.

For example, if an owner passes away and their spouse or child inherits their share of the company, sometimes they have disagreements with the other owners. In many cases, everyone agrees that they simply can’t work well together, and the heir agrees to sell their share. However, without a buy-sell agreement, the parties might have arguments about price or run into potential tax issues. The buy-sell agreement reduces the risk of these time-consuming and expensive legal difficulties.

In other situations, an owner dies, and their spouse or other heirs believe they should inherit the owner’s share of the business. But this may not be what the owner wanted, and if they failed to create a buy-sell agreement, the co-owners might find themselves in a lengthy legal battle with the heirs.

These steps will save a lot of time and prevent potentially serious legal disputes both while you run the company and after you’ve passed on. You’ll know that your company will be in good hands if you cannot continue running it, and your partners will have the same assurance.

What If I’ve Already Started My Business?

If you consulted a business attorney to draft your ownership agreement and other documents, it’s likely that they asked you about these topics and put some framework in place to help with succession. However, your estate attorney should review the paperwork to ensure nothing was missed. You should also discuss your will and whether you need to include anything regarding the company or your shares.

What If I’m the Sole Owner of My Small Business and Something Happens to Me? How Do I Ensure Things Continue Smoothly in My Absence?

First, decide who you would want to make your business decisions if you were hurt or ill and couldn’t make them yourself. Then speak with your lawyer about designating a durable financial power of attorney, or POA, so that person has the authority to make business and financial decisions for you. There are two requirements for creating a financial POA in New Jersey:

You should be of sound mind. Generally, the court will interpret this to mean that you were capable of understanding the ramifications of your decision when you signed the document.
You will need to have the document notarized. This means finding a notary public and signing the document in front of them.

So I Could Just Get One of Those Power of Attorney Forms Off the Internet, Fill in the Blanks, and Find a Notary?

We don’t recommend leaving your company’s future up to a form you found on the internet. Often these are general forms that may not account for all the complexities of your specific business or financial situation. Some people may also find a form that doesn’t meet their state’s requirements. An experienced estate planning attorney can draft a power of attorney document that addresses your specific needs and will stand up to scrutiny if it’s ever challenged in court.

Is There Some Way to Reduce the Tax Burden on the Person I Leave My Business to?

This is a very common question, and there are several possible options depending on the situation. You should discuss your particular case with your attorney so they can recommend the best solution for you, but here are a few possibilities that involve transferring property while you’re still alive:

If you plan to leave the business to your spouse, you may be able to use the “marital deduction” by transferring the property to them or into a marital trust.
You can use the Lifetime Gift Tax Exclusion to transfer business property worth up to $12.92 million dollars to family members.
There is also an Annual Gift Tax Exclusion permitting you to transfer up to $17,000 in property per person each year.

Estate Planning Attorneys at Van Dyck Law Group Are Here to Help

The Van Dyck Law Group is always available for consultation if you have questions or concerns about your estate plan and business interests. Please contact us for more information about planning your company’s future. Call us at 609-293-2562 or visit us online.