March 5th, 2021 | Updated on June 28th, 2022
While many agree that it’s important to plan for the future, surprisingly few Americans have actually gone through with it. According to Merril Lynch and Age Wave, just 30 percent of Americans have a will today – a decline from 50 percent in 2005. It’s not just about money either.
Research shows that 90 percent of over 55s are comfortable discussing end-of-life actions with their loved ones, yet not many of those conversations are followed up with actions – particularly by small business owners.
With many older adults are becoming entrepreneurs, it is even more important that business owners take the time to plan for their business’ future. Estate planning helps you control your future while giving you time to carefully plan out what you envision for your business.
Do You Have A Will And Estate Plan Drafted?
If you choose to create a will, you will be able to dictate your wishes for your estate. Without one, you risk actions being taken against your wishes. Individuals who pass away without a will risk their estate becoming intestate.
This means the estate is divided up according to state laws. Also, if a family member decides to contest divisions, this could hold up the passing down of your estate for months.
Similarly, an estate plan helps you choose a Power of Attorney who would have the right to make financial decisions for yourself – and possibly your business – if you were unable to.
When drawing up your will and estate plan, you can either choose to hire an attorney or go the DIY estate planning route with the help of will templates and estate planning software.
Doing it yourself can be considerably cheaper, but there are also risks of your will being improperly witnessed or invalid.
Do You Have A Business Succession Plan?
During that time of transition before your estate plan kicks in, you will need to think about who will manage your business.
Before drafting a business succession plan, define what is important to you, such as keeping ownership in the family.
Over 90 percent of businesses in the U.S. are family-owned. However, only 30 percent are passed onto the second generation, and 12 percent make it to the third generation.
Experts recommend starting business succession planning at least 15 years before your retirement, but it is also a good idea to get your plan drafted along with your personal estate planning documents to cover the event of an untimely incident.
You may also want to think of implementing a preparation/training plan for your successors. Finally, consider how you want to exit your business, such as by selling it to an outside buyer or offering a valued employee a chance at ownership.
Is Your Tax Planning Accounted For?
If you plan on passing on your business and other assets, you also need to think about the tax implications – for your estate and the intended recipients.
Before anyone receives any part of your estate, a federal estate tax of 40 percent is levied. This is deducted from the value of your estate if it surpasses $5.3 million (or $11.58 million for couples). However, transfers between spouses are exempt from both gift and estate tax.
There are also state levied tax charges you need to think about when estate planning. With this, the charge is levied directly on recipients of your estate.
If you want to minimize the inheritance tax burden, an estate planning attorney or tax accountant can help. Some options include putting assets into dedicated trusts, or gifting them while you are still alive.
Finally, make sure you have a conversation with your family. If your business is a partnership, you will need to speak to your other partners about your wishes for your stake in the business.
Being transparent about your wishes and intentions for your estate helps to avoid situations of confusion or shock later on.