In California, business owners have unique estate planning considerations to factor into their overall financial strategy. They must proactively protect business and personal assets, which can become challenging with larger estates or multiple heirs. The following points can guide you through the process.
Consider the overall plan
Estate planning involves much more than a last will and testament. Each plan component has a unique purpose, and your estate may benefit from essential tools such as a living trust, financial and medical powers of attorney and an advance healthcare directive.
Additionally, you can set up multiple trusts for personal or business reasons or to reduce the chance of issues between family members regarding their inheritance, among other purposes.
Succession planning
As a business owner, you must develop a business succession plan outlining who will operate the business in your absence. Consider various scenarios, such as retirement, incapacity or death, and specify the appropriate actions and who must take them. The list could include identifying your potential successors, employee transitions and additional training to enhance preparedness.
Insurance coverage
Evaluate your need for business and personal insurance to provide financially for your business and family if something happens to you. Consider life insurance, disability insurance and key person insurance. These policies can replace lost business or personal income and provide financial support for your loved ones in the case of an unexpected event.
Consider taxes
Estate planning includes understanding and planning how to handle the impacts of estate, inheritance and gift taxes on your family business. Tax planning will look at ways to minimize the taxes your estate would pay, setting up trusts to hold assets and reduce your taxable estate, and other strategies.
Regular estate plan review
Periodically review your estate plan to ensure it reflects your business and family changes over time. Consider your overall plan, and update details such as beneficiary designations on retirement accounts and life insurance policies.
If you have divorced or remarried, update your beneficiaries, will and other documents to address a new spouse and adoptive stepchildren. Document changes after significant life events, and communicate your wishes clearly to your loved ones to avoid any conflicts or potential misunderstandings in the future.
Having an estate plan that addresses your business and personal assets can properly honor your wishes, ensure that your family receives needed financial support and helps your business live on as your legacy.