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What will happen to your small business in the unfortunate event that you pass away, or become incapacitated? Will your heirs be able to claim their fair share of your assets? Will your business be able to continue operating? With proper estate planning, the answer to both questions is a resounding ‘yes’. However, the failure to craft an effective estate plan can leave your family with major headaches and can put the future of your business at serious risk.
Four Things Small Business Owners Need to Know
You should avoid probate: Everyone should have a will, but most small business owners should also have a living trust. It is critical that your small business interests avoid probate. Probate is a time consuming, expensive and public process. In Wisconsin, putting your business assets into a living trust will allow you to bypass probate.
You need a succession plan: Proper succession planning is particularly important for sole proprietors. As a sole proprietor, you and your business are fundamentally connected. If you want the operation to continue, you need to have a clear and effective succession plan. This will keep the operation running smoothly and dramatically reduce the risk of a dispute arising.
Buy-sell agreements can eliminate disputes: If you have a business partner, or partners, a well crafted buy-sell agreement is an absolute necessity. Put simply, a buy-sell agreement is a contract between the shareholders that becomes active if one of them becomes incapacitated. It puts a specific price on each share of the company. This is critical because the worst case scenario for a business is someone getting stuck as a partner when they are ill suited for that role. Small, closely held businesses can run into this problem without proper estate planning. It is simply very difficult to put a price on and find buyers for the shares of a small private company. Messy disputes often arise if there is not a buy-sell agreement, and everyone could end up worse off as a result. The bottom line: a buy-sell agreement will alleviate this issue by establishing a firm price on the business shares. This will help give everyone a clear path to move forward.
Make sure there is enough liquidity: Many times, small business owners want to pass on the value of their business interests to their family, but not the business itself. This happens for a variety of reasons, maybe the family was never really involved in the business, maybe they have no interest in it, or maybe they simply have their own obligations. Regardless, you may want your business partner to buy out your shares when you pass away. Your business partner might be happy to do so, but might not have the liquidity to make such a purchase. Life insurance can be used to resolve this issue. Many business partners take out life insurance policies on each other in order to ensure that the other will have enough liquidity to buyout the shares of the business.
Need Legal Help?
Small business owners have a lot at stake when it comes to estate planning. It is important that you are able to protect both the interests of your family and the interests of the business you worked so hard to build. An experienced Wisconsin estate planning attorney can help you craft a plan that fully meets your individual needs.