When someone starts a business, the last thing they want to think about is death. A close second? Incapacity. However, planning for these events is critical to a company’s success. If you are a business owner, you need to include your business interest in your estate plan.
What is “business succession?”
It’s a way of ensuring that a business will continue operating if the owner (or one of the owners) dies or becomes unable to participate for some reason. It also may protect a company when an owner retires or is in the midst of divorce negotiations.
How can I include a business in my estate plan?
First, if you have partners, you can put a buy-sell agreement in place. This document spells out how the business will be handled if you can no longer participate in the company. For example, your buy-sell may provide for an owner’s interest to be bought out by the other partner or by the company itself. Having a good buy-sell in place is no good, however, if there’s no capital to pay for the buy-out. Business owners may use insurance policies, sinking funds, payment plans, or personal funds to purchase another owner’s interest.
Your estate plans must be synchronized with your business succession interests. Does your durable power of attorney address your business interests? Your power of attorney can be broad or limited. Does your agent have the power to make decisions about your business? More importantly, does your agent have the ability to make those decisions?
Does your Will leave your business interests to family members who have little interest in the business? Your loved ones may not be the best people to continue operating the company.
What can happen if I don’t have a business succession plan?
Without the right planning, a business could be in real trouble.
Let’s look at Dan and Bob’s Construction Company. Dan and Bob started their company from nothing. After 30 years, business was thriving and expanding every year. Then Bob suffered a major stroke, something the average 50-year old doesn’t expect to happen. Although Dan and Bob were astute businessmen when it came to building houses, they had failed to put together a business succession plan.
The company was thrown into confusion because Dan did not have the authority to make financial decisions by himself. One of Bob’s sons tried to take his place in the business but had no interests in business of any kind. Bob had not executed a durable power of attorney that would allow anyone to make financial decisions for him, so his wife had to petition for a guardianship/conservatorship. The company suffered cost overruns and angry clients because they fell behind in honoring their contracts.
A buy-sell agreement would have allowed the company to smoothly transition. Bob’s partnership interest could have been bought out by Dan or by the company itself.
Don’t Have an Estate Plan Yet?
The attorneys at Miller Estate and Elder Law help their clients develop estate plans that cover all their assets, including business interests.
For a free consultation with an experienced Alabama attorney, contact us at 256-251-2137 or use our convenient Contact Form. We have offices in Anniston and Birmingham and serve clients in Gadsden, Hoover, Talladega, Vestavia Hills, and surrounding areas.
