A 10-step guide to estate planning (Part 2)
August 15, 2016
By Martha Sullivan, CPA, CVA/ABV, CM&AA, CEPA
Partner, Succession Planning Practice Leader
Estate planning is a necessary task for both individuals and businesses who want to protect their loved ones and their assets following their passing (For a guide to individual estate planning and steps 1-6, please see Part 1). For a business owner, there are additional considerations to ensure that those important to you are taken care of. The business is likely the largest asset in the portfolio and also the least liquid. In the midst of grief, the company needs to protect its profitability and value while its disposition is determined. The size and value of the business could have a significant impact on estate taxes. If there are multiple shareholders in the company, a death will trigger some of the clauses in the buy-sell or operating agreement, assuming there is one.
The requirements in these agreements should align with your other arrangements. If not adequately planned for, your loved ones may be left with one heck of a mess to work through and end up with far less in financial assets than you hope.
As a business owner, your estate plan and planning the exit from your business should include the following steps:
7. Document and Communicate the Business Contingency Plan: Consider and document what you want done with the business if you are incapacitated or die unexpectedly. Who’s in charge in which key areas? What incentives should be pre-arranged to encourage these individuals to help the company navigate the crisis? Should the company be sold? If yes, who do you trust to help facilitate the sale? Who might be good buyers?
8. Review Buy-Sell Documents Annually: Too often we hear horror stories of buy-sell or operating agreements stuffed in the drawer after starting the business never to be looked at again until something hits the fan. It is critical that you not only have a current understanding of what the requirements are upon death or disability but that the approach to value, alignment with insurance policy ownership and designations, and timelines for disposition still make sense.
9. Work on Enhancing the Value of Your Business Everyday: The most important value driver in a business is its self-sufficiency. This means there are systems, processes and people in place to ensure that the mojo keeps flowing if the owner is no longer present. Business owners that understand this tenet know that this does not happen by accident. They build and execute business plans and recognize that the goal is to have a company that is ready for sale at any time.
10. Plan Your Exit: In tandem with step 9, go through the process of planning your exit from your business sooner than later. In fact, start it today. Owners and their families derive considerable value from going through the process, understanding the pros and cons of the various options and identifying strategies for enhancing family wealth – while you are still alive – as well as a part of your legacy.
Ten steps may seem a bit daunting, but know you don’t have to do this alone. In fact you should not do it alone. It’s easy to want to put this task off and ignore it. But don’t. Take one step today and another step tomorrow. Pick up the phone today and call your most trusted advisor. They know you well. He or she will want to walk beside you in your journey to launch your loved ones, in the best way you know how, into the next phase of their lives.