Business owners survive many challenges and for family businesses, there are some unique challenges to protect and preserve your business… and your family. A living trust is an estate planning tool business owners can use to help their business continue to run after their death.
LIVING TRUSTS CAN:
• Avoid probate. Probate is the legal process where the court validates your will, sees that your debts are paid, and interprets your will to determine how and to whom your assets are distributed. The major problems with probate are that it is expensive, lengthy, public, and it places all the control in the hands of the probate courts.
Having a living trust will ensure that your estate will be settled quickly, privately, and inexpensively as it keeps your estate out of probate and allows you to maintain full control over the distribution of your assets and your business.
• Minimize or Eliminate Estate Taxes. A living trust can provide a means to reduce, or even eliminate estate taxes. With fewer tax burdens, there are fewer debts to satisfy and a better outlook for the continued health of the business as well as your families’ future.
• Create a Business Succession Plan. Establishing a system within your business will create a plan for someone to succeed you so that your business can continue to run smoothly without you. The death of a business owner causes a number of problems which can be addressed with proper planning, one of which is that the value of your business may be drastically reduce without you there to run the show unless you plan ahead. Ask yourself:
• Should the business remain in the family?
• Are there capable successors/owners?
• Should the business be sold? If so, to whom and at what price.
ESTATE PLANNING CAN:
• Minimize loss of business assets: What people may not consider is that often, assets from a business may have to be used to satisfy the personal debts of a business owner. When there are not enough personal assets to satisfy personal debts, the creditors/government will go after business assets to satisfy these debts. This may leave a business strapped or even insolvent. However, with proper estate planning, you can protect your business and allow it to continue and grow after you die.
• Plan for the financial needs of your estate. Take a look at your personal assets and debts. Can your family continue to survive based on your financial picture as it is today? If you do not have enough personal assets to cover your personal debts, start to put more money aside to cover those debts. Another option is to purchase life insurance. For many, life insurance can be a quick and less costly solution. Life insurance will provide you and your heirs with an immediate guarantee that when you die, the proceeds from the life insurance can be used to satisfy the personal debts, thereby, allowing your business to continue unharmed.
For many small business owners, it can be difficult to separate business and estate planning as they are each contingent on the other. With proper planning and advice, you can ensure that your family and your business will continue to survive when you are no longer there to hold the reins.