Can I Afford To Die At Midnight Tonight?
No article or handbook can begin to understand what the surviving spouse and loved ones go through on the death of the business owner. Immediately upon death there will be a host of financial details to deal with, not the least of which is continuation of the business. The surviving spouse will be overwhelmed, distracted, disinterested in dealing with the myriad of financial details and prone to financial misjudgments.
The best strategy is to make estate plans while living.
As a business owner, you face an entirely different level of estate planning than your non-business owner peers. You have to plan for the business transition as well as all of the other estate planning matters.
What happens if you don't make it to work in the morning? Is the business worth the same? If not your heirs may find themselves unpleasantly surprised when they suddenly own a business that is rapidly deteriorating in value because you are not around. And if the proper succession of ownership and management is not in place the deterioration could be exacerbated by the bickering of the heirs.
Unless you plan to liquidate the business in the immediate future, you need a succession plan. This is true, even if you plan to sell to a third party outsider. Most buyers require on-going management and if it is not there, the business value drastically suffers.
A succession plan has two aspects: Ownership and management.
The owners and managers don't have to be the same people. You can set up a Board of Directors to control the long-term strategy and select the key people, delegating the day-to-day operations to the management team. Even relatively small companies can benefit from the discipline and insights a Board brings.
The Board is not just an ad hoc committee; it must have an agreed on vision and a strategic plan for the company. Successful companies have a written business plans with strategies, goals schedules, milestones and management responsibilities assigned to achieve those goals.
A Board is an excellent system for intergenerational transitions. When you are suddenly no longer around, the Board as an organization continues and the business management is intact.
In my experience, planning for succession management adds value to the business, whether or not the current owner's exit is imminent. I recommend that you institute an active program to train a replacement for every management job in your company, even yours, especially yours. This means you need to set up systems and budgets to operate the company without your hands-on supervision.
Setting up the ownership tracks and the management tracks are all a part of the succession plan that will give you confidence in answering, Yes! to the 2nd question.
Estate Planning General
In addition, you need a will. It needs to be reviewed periodically, at least once per year. Life events and tax laws change and the your will needs to be updated to reflect those changes.
You probably should have a living trust to eliminate the negative aspects of probate with all of the designated trust assets properly assigned to the trust. Depending on the size of your estate, you will need other trusts to minimize estate, gift and other tax aspects. A simple by-pass trust can save your estate over $1/2 million in taxes.
What happens if you are severely debilitated when hit by the bus? How are decisions about health and finances handled under those stressful conditions? You will need a Durable Power of Attorney to give someone to run your affairs rather than the courts.
Estate planning is not fun. We do not like to deal with our mortality.
Get to "Yes" on Both Questions
For most private business owners, the business is the engine that generates the wealth. You have to plan for the success of that business and your estate whether you live or die. This means putting a plan together that gets you to "Yes" on both the 1st and 2nd question.