What will happen to your small business after you pass away? While death may not be the first thing that comes to mind when planning for your business this year, the answer to this question is more important than many realize. It's easy to allow making a will perpetually fall to the bottom of your to-do list, but it's important to take the time to protect your life's work. Even so, a majority of Americans (64 percent) do not have a will, according to a new Rocket Lawyer-Harris survey.
More than half (57 percent) reported they do not have a will because "they just haven't gotten around to making one." Nearly a quarter (22 percent) said they believe making a will is not urgent and nearly a fifth (17 percent) claimed they do not have a will because they think it's unnecessary.
When developing the estate plan for your small business, be sure to address taxation implications upon sale or transfer of ownership, death, or divorce. Also review owner estate planning to minimize taxes and avoid delays in transfer of stock to remaining owners or spouse. It's also generally a good idea to make a buy/sell agreement that's fair, reflective of the value of the business and minimizes taxes.
Having a succession plan in place is just as important as a business plan -- which you can specify in your will. Outline a clear decision-making process that identifies governance processes for involving family members, and include a method for dispute resolution. Indicate who your successors will be, both managers of the company and owners of the business, and specify active and non-active roles for all family members.
Your will also should include a transition plan to smooth the succession process. Consider your options: outright purchase, gift/bequest, or a mix of these. If you wish for the business to be purchased, consider financing options such as financing from an external party or self-financed from the retiring owners on a deferred payout basis. Most importantly, create a timeline for implementation of the succession plan.
Keep in mind that If your business is not incorporated, it technically passes when you do. If you have the right legal structures in place, you can leave it -- or parts of it -- to your loved ones in your will. The business can continue to run under the same name without disruption. To determine which legal structure is best for you, it's always best to consult an attorney.
For the those who have put off estate planning because they don't have a lawyer (17 percent) or think it costs too much (14 percent), Rocket Lawyer can solve both issues by offering free will creation and access to qualified attorneys at significantly discounted prices though the On Call® network. To drive awareness of the importance of estate planning, and make it easier for anyone to create a will, Rocket Lawyer has designated April "Make-A-Will-Month". If you have not yet created one, check out our page that walks you through the entire process of making a Last Will and Testaments.
It's tragic to see a family business fall apart after the passing of the principal -- and it happens all too often. Building your business on solid legal foundations and within an intergenerational context will help make sure your small business -- your legacy -- continues to thrive once you've passed on.
Lisa Honey is the Business Lead for Rocket Lawyer's Legal Documents business line. She left the traditional practice of law after seven years in commercial and civil litigation to join Rocket Lawyer. She's licensed in California, Texas and Arkansas.