After weeks or months putting in 16-hour days of dedicated work, you've launched your business. Probably the last thing you want to think about is how it will end. Lisa Weinstein Burns, Boston partner with Rimon Law, has concentrated her practice in the areas of tax planning, business succession planning, estate planning and estate administration. Here she explains why business owners should not put off estate planning and offers advice for those who aren't sure where to start with this necessary responsibility of business ownership.
Young, healthy business owners or new entrepreneurs with few assets may feel there is no urgent need for estate planning. Is this a mistake?
Not having proper estate planning documents in place, no matter your age, is generally a mistake. As we know from recent events, even young, healthy people can die without warning. For those who do not have a lot of assets, it does not need to be complicated, but you do want to make sure that it works, which means having a qualified estate planning attorney involved to guide you.
Many people forget that assets like group life insurance and retirement plans are also part of their estates. If someone dies without a will, the intestacy laws will prevail, and that means that the state determines where those assets will go, not the decedent. This can have very unintended results, such as some assets passing to the decedent's parents, rather than all assets passing to a surviving spouse, for example.
What arrangements should businesses with more than one owner make to ensure a smooth transfer of ownership following the death of a partner?
Depending on the nature of the business, it is very important to have good legal advice regarding what happens when a partner or shareholder exits the business, whether by death, disability or some other reason. Not only can such an exit be disruptive for business, it can also have catastrophic tax consequences, if not properly planned. Often business owners will put into place a buy-sell agreement that will determine what happens in the event of death. Such agreements can be paired with life insurance so that the business has proper funds to make the necessary adjustments in light of the death of a co-owner, but also to provide funds to the decedent's family for the co-owner's interest in the business.
What other documents, in addition to a will, do you recommend business owners complete?
In addition to a will, business owners, as well as the public in general, should consider whether a revocable trust is advisable to help avoid probate and to provide estate tax minimization planning. There are also lifetime documents, as opposed to testamentary documents, which are only effective while a person is living, but are equally as important. These lifetime documents consist of durable power of attorneys, which allow a person or persons to step into the individual's shoes for financial and business decisions if a person is unavailable or becomes incapacitated. Sometimes a business owner will name one person under a power of attorney to handle his or her personal financial affairs, and do a separate power of attorney naming someone else for their business affairs.
In addition to the powers of attorney, it is also important for every individual to have a valid healthcare proxy, which names someone to make health care decisions on his or her behalf, when he or she is unable to do so, as well as an Authorization to Release Protected Health Care Information (HIPAA Authorization), which allows an individual to authorize his or her doctors to release medical information to chosen family members and friends.
This article was written by Gillian Burdett of Examiner.com for CBS Small Business Pulse.
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