Planning to continue your business can be a scary thought. Unfortunately, many people continue to grow their business without planning for what will happen when they retire or die. Small business owners are especially hesitant when it comes to estate planning because they are so busy with day-to-day operations. In addition, they are often reluctant to make decisions that may be unpopular or hurtful to their employees or family members. However, business owners can easily start planning their business continuity in small steps while they are still active in their operations.
One often overlooked business tool is key personnel insurance. Key person insurance is insurance taken out by a company that financially compensates for the permanent or temporary loss of a key person of the company. Anyone who is an integral part of the business and whose presence contributes financially to the company’s operations can be covered by this type of insurance. These policies can cover a wide range of losses, including replacement or recruitment costs of key personnel; loss of a business project undertaken by a key employee; insurance that protects the interests of the partnership; and insurance related to corporate loans.
In addition to insurance, there are many other ways to achieve the smooth continuation of your business. Congress has established an estate tax-exempt program for the next two years that allows you to donate up to $5 million to an individual and $10 million to a couple. This is a great opportunity to ensure that liquid assets are handed over to people you believe will protect your business in the future.
Another way to protect your company’s legacy is through a cross-buy-buy-sell agreement. This agreement would allow the surviving partners of the firm to buy the deceased partner’s share at a predetermined price. This purchase financing can be financed in such a way that the partners buy insurance for each other and use this money to pay for the purchase.
Creating a living trust is a new opportunity for you to plan the succession of your company. A trust is a legal entity that gives another person, the trustee, legal ownership of the beneficiary’s property. A living trust is created during life rather than dying. This arrangement can be useful in reducing estate taxes and avoiding probate. Avoiding a difficult probate process is important because businesses often have to make quick financial decisions after the owner’s death.
Estate planning and small business attorneys can provide you with the important information you need to safely and effectively continue your business. It’s never too early to turn to a professional when your family’s livelihood is at stake.