For business owners, estate planning is an important part of succession planning to ensure that your business will survive to benefit your heirs, your employees will have stable employment, and your business will continue to honor its contracts and meet the needs of its customers. Further, a significant portion of your wealth is likely tied up in the business and you will want your family to have access to this wealth after your death.
While your succession plan may focus on options for selling the business or moving operations over to a different individual, this takes time to implement. Further, if you owned the business at the time of your death, your estate becomes an owner until the business is able to wind down, buy out the estate, or make other arrangements with the estate and heirs that match what you set up in your estate plan.
Regardless of the business, there is likely liability that the estate needs to take steps to limit. This could mean continuing liability insurance, wrapping down the business in an effective manner, reviewing contracts to identify and address potential issues, and identifying any applicable statute of limitations that will further reduce potential liability.
Depending on your business model, your business may decrease in value substantially upon your death, especially if the business is fully dependent on your participation and personality for success. However, your estate may be taxed at a rate that values the business as a thriving, going concern. This can be mitigated by showing clear documentation that the business is dependent on the owner’s involvement and, without the owner, the business has substantially less value.
Winding Down the Business
Even if your business is dependent on the owner for its success, it still likely has employees and contracts that must be fulfilled and cannot just stop instantly. All businesses should have a succession plan that empowers a trusted lieutenant to step in and ensure that final contracts are met, employees are paid, and the business is wound down in a clean fashion.
In some situations, for smaller businesses or those that do not require large teams, it may be that the personal representative can step into the owner’s shoes and wind down the company, divide up the assets, ensure contracts are met and closed, and move the business into its next phase.
Whoever is responsible for the business has a fiduciary duty to the heirs of the estate to run it in such a fashion that the assets are preserved. For example, one of the fiduciary duties of an administrator is the duty not to commit waste, to avoid conflicts of interest, and to exercise good faith.
Preparation and a clear understanding of your financial picture, including your business plan, can help streamline this process for your family. At Dunn Law Firm, we take the time to get to know you and your specific situation in order to create a comprehensive estate plan that meets your goals. Further, we reach back out periodically. As your business grows and your life changes, your estate planning goals will likely change as well. To learn more, reach out to the Dunn Law Firm by calling (435) 628-5405 to set up a free consultation today.