As a business owner, you should have an estate plan.

It’s important that this plan considers your most valuable asset, the business. There are many factors to consider:

Equitable or Fair Division

Parents typically want to divide their estate equitably among their children. This can be complicated for you if some but not all of your children work in the family business. You have to consider how to fairly divide your assets without placing an undue burden on the children working in the business.

Agents and Fiduciaries

Often the agents, executor, or trustees (called “fiduciaries”) in an estate plan are not selected by qualification, but by age. The spouse is usually the primary agent or fiduciary and then the eldest child. However, you must also consider that these fiduciaries will also control the ownership interest of the business. If the eldest child is the fiduciary but does not work in the business, it can adversely affect another child who is working in the business. The eldest child will likely have decision-making authority.

Transition Complications

If estate taxes are an issue, you may consider transition in some ownership during life to the family members working in the business. The question: are the shares gifted to these family members or do the family members purchase interest from you? Additionally, the estate plan should contemplate potential management and owner deadlocks after you have passed.

Title of Business Interest

An often overlooked issue is how your ownership is titled. If the ownership interest is titled in your name, that asset will likely have to be probated upon your passing. There are ways to avoid probate by simply retitling the asset.

Conflicting Provisions

It's important that the estate planning documents complement the business agreements to effectuate the transition plan. In most instances, the business documents will govern and control the ownership interest. If the estate planning documents direct the fiduciary to transfer the ownership interest to a person that was not contemplated in the business transition, there will be potential disputes between those that were contemplated in the business succession plan and the beneficiaries under the estate plan.

These are important business details that must be considered.

We’d love to help with all your estate planning needs.