A business that someone started or acquired during their life may be their main source of income. It may also be their most valuable personal resource. They, therefore, may have an interest in seeing the company continue if possible after they die.
There are multiple solutions for addressing a business or professional practice in an estate plan. The following are some of the best ways that business owners who are creating or updating their estate planning documents can address their interests effectively.
Leaving the business to a specific person
In some cases, the ownership of a business may already be separate from its management. A testator who owns a business could therefore choose someone they trust to take over executive and managerial roles while selecting a specific beneficiary or multiple beneficiaries to inherit their ownership interest in the company. This approach is relatively simple, but it does have its drawbacks. The value of the business may be enough to put the estate at risk of taxes. Additionally, beneficiaries might decide to sell or liquidate the business, effectively destroying the company that the testator dedicated years to creating or improving.
Holding the business in a trust
Transferring ownership interest of a business to a trust can be a smart move for estate planning purposes. The owner can limit what beneficiaries do with the business. They can arrange for multiple people to share an interest in the company. They can also reduce the risk of taxes and other probate complications related to high-value assets. Especially if someone does not want to give absolute control to a specific person or the business is worth millions of dollars, a trust can be a good solution for addressing a business in an estate plan.
Leaving instructions for liquidation
Some people do not believe that their loved ones have a desire to run the business or the ability to do so. Others might have a professional practice that doesn’t work without them there to offer professional services. Arranging for the posthumous dissolution of the business and the liquidation of its asset can lead to beneficiaries receiving the proceeds of those sales. There are benefits and drawbacks to each of these solutions. There may also be other arrangements possible for those hoping to address their business in an estate plan, such as selling the company or arranging for its IPO.
Creating a unique estate plan that addresses high-value assets gives someone control over their legacy. Realizing that a business requires not just a succession plan but also inclusion in an estate plan can help people make informed, advance arrangements for their most valuable resources.