Attention Entrepreneurs…Are You Protected?
The Importance of Estate Planning for Small Business Owners and Entrepreneurs
Having a valid, legally enforceable, and well-thought-out estate plan in place is important for every adult person to make a priority. Different individuals at varying stages of life, facing different situations, will each have unique goals and needs, both personally and professionally. There is no such thing as a one-size-fits-all estate plan. In addition, the documents that make up an estate plan can often be quite complex when properly drafted, and it is much wiser to seek the assistance of an experienced estate planning attorney rather than turning to “do-it-yourself” forms or online resources.
Small business owners and entrepreneurs share a number of common concerns that should be addressed in their estate plans. “Who will manage my business and affairs if I get sick, die, or become otherwise incapacitated?” “How do I protect my personal assets if my business gets sued?” “How do I prevent my children from squandering my assets if they are still young when I die?” “What will happen with my business if I die?” With the proper legal documents in place, these questions can all be answered, and your wishes expressed in a legally enforceable manner.
Before taking a look at some of these concerns and how to address them, let us first define what we mean when we refer to an “estate plan.” Your estate plan is a collection of legal documents that lay a framework for what should happen should certain, generally negative, events occur such as death or incapacity. These documents describe what you want to happen in such situations and give legal authority to specified trusted individuals to carry out such wishes and otherwise handle your affairs, both personal and financial, should you not be able to do so yourself. Some of the more common documents found in an estate plan that are particularly relevant to small business owners and entrepreneurs are a Last Will and Testament and a Power of Attorney.
A Last Will and Testament is essentially a set of instructions describing what happens to your assets and affairs when you die. The person you nominate as your Executor is the individual you want to be in charge and carry out these instructions. As a small business owner, if the person you select as your Executor is not the person you would want to continue to run or to wind down your business after you die, you can designate someone else specifically for just that role. For example, if you name your spouse as your Executor but feel he or she would not be able to competently manage your business, you can appoint someone else like a trusted employee to manage the business for the benefit of your estate beneficiaries. If you feel it would be more advantageous to your beneficiaries for your business to be sold rather than continue to operate, you can direct that it be sold and even specify conditions regarding such sale should you choose.
Your Will can also set forth conditions for distributions to beneficiaries. For instance, you can specify that if a beneficiary is under a certain age at the time of your death, such beneficiary’s share of your estate assets shall be held in trust for his or her benefit until he or she reaches the specified age. You can nominate someone to act as trustee to manage the assets of such trust account until the beneficiary reaches the set age. For some people, there may be reasons to create an inter-vivos trust in addition to a Will, but we will leave that discussion for another article.
A power of attorney is a document that gives legal authorization to a specified individual or multiple individuals to handle any non-medical matters for you while you are still alive, should you be unable to do so yourself. This document can be drafted in a way to give a very broad scope of authority to the agent(s) you designate, or you could limit the authority to act in only certain matters. An enforceable and well drafted power of attorney can be an invaluable document for a small business owner because it will allow someone to continue to manage the business in the event of an incident making you as the business owner unable to do so yourself.
Amid the increased amount of uncertainty that has been caused by the Covid-19 pandemic, the questions prompting the need for an estate plan have come to the forefront of more people’s minds than ever before. The above is just a small sample of potential issues that small business owners may face and the legal documents they should consider having in their estate plan. Do not wait until it is too late. Contact an experienced estate planning attorney and get the proper documents in place to protect your business, assets, and family and ensure your affairs will be handled as you intend in case of incapacity or death.
Phillip Vacchio, Esq. is a partner at the Shivers Law Group and of Counsel to Ianniello Anderson, P.C.