People that own small businesses have to address some estate planning matters that would not be a factor for others. This being stated, the are more similarities than differences, and we will provide some clarity in this post.
One of the things that is different is the need for asset protection. When you are establishing your business, you want to use a structure that will separate your business from your personal property.
The limited liability company (LLC) is very commonly utilized by small business people. When you establish an LLC, generally speaking, your property would be protected from legal actions that are initiated against your business.
However, if you are responsible for damages that are incurred by another person while you are engaged in business activities, you could be held personally liable. You would also be responsible for business related debts if you provide personal guarantees.
The asset protection works in the reverse direction as well. If you are personally sued, the business assets would be protected. However, a court could issue a charging order to place a lien on compensation that you receive from the business.
Another asset protection structure that can be useful for some people is the family limited partnership.
If you establish a family limited partnership, you would be the general partner, and family members that you bring into the partnership would be limited partners. You would have the sole decision-making authority as the general partner.
The personal property of the partners would be protected if the partnership is sued, and the reverse would also be true. In addition to the asset protection, families that are exposed to the estate tax can use these partnerships to facilitate asset transfers to one another at a tax discount.
Small business partners can use buy-sell agreements for succession and estate planning purposes.
To begin the process, the partners will determine the value of a share in the business. The partners would purchase life insurance policies that pay out the value of a share.
When one partner dies, the other partner or partners would use the proceeds to buy their share in the business from their estate.
These agreements can also be used to allow partners to step away from the business for any reason, but that approach would not necessarily revolve around the purchase of life insurance.
Asset Transfers and Incapacity Planning
In addition to the business-specific nuances, people that are in business for themselves have to cover the standard estate planning bases. An asset transfer vehicle will be needed, and for many individuals, a revocable living trust will be the right choice.
You maintain control of the assets while you are living when you have this type of trust, and you can include spendthrift protections and asset protection safeguards for the beneficiaries. After your passing, the distributions would be made outside of the costly and time-consuming process of probate.
This is the option that is right for the widest range of people, but there are other possibilities. The right course of action will depend on the circumstances, this is why you should discuss your unique situation with an attorney from our firm.
Your estate plan should also address end-of-life matters. A living will should be executed to state your life-support preferences and organ and tissue donation choices.
You should add a durable power of attorney for health care to name an agent to make medical decisions on your behalf if it becomes necessary. To give your agent the ability to speak freely with your doctors, you should include a HIPAA release.
If you have a living trust, you can name a disability trustee to act as the administrator in the event of your incapacity, and this is another benefit that they provide. A durable power of attorney for property can be utilized to empower someone to manage property that is not in a trust.
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