Planning ahead for a business in the event of death is important to ensure that operations continue smoothly. For a family that relies on business income, this is also a thoughtful step toward taking care of your loved ones.
Creating a comprehensive plan early can help avoid confusion and protect the business from unnecessary complications.
Establish a succession plan
A succession plan outlines who will take over the business after the owner’s death. It identifies key individuals, such as family members or business partners, to step into leadership roles. Designating someone with the right skills to manage the business is the top priority. Take the opportunity to provide them with training and involve them in decision-making ahead of time to ensure a smooth transition in the future.
Set up a buy-sell agreement
A buy-sell agreement helps control the ownership of the business if an owner passes away. It allows the remaining owners or shareholders to buy the deceased owner’s share at a predetermined price. This ensures that ownership remains stable and prevents outsiders from gaining control of the company. Funding for the agreement can come from life insurance policies, which may help the surviving partners purchase the shares.
Consider a trust
A trust can be beneficial for business owners who want to protect their assets and ensure they distribute according to their wishes. Placing the business in a trust allows the designated trustee to manage the business on behalf of the beneficiaries. This can prevent family disputes and ensure the business runs smoothly.
Update important documents regularly
Be sure to keep all business documents updated after key events. This includes the business’s operating agreement, articles of incorporation and financial records. Regularly reviewing and updating these documents ensures that the plan in place remains relevant and effective.
Communication is key at every step of your long-term business preparations and estate planning. Business partners, family members and other key stakeholders need to understand the plan. This prevents surprises and ensures that everyone knows their role when the time comes.
