Estate planning is essential for dealing with death on the corporate side. It keeps business assets separate from personal assets when applicable, and proper documentation ensures a legal obligation to carry out your wishes.
Keep reading as we look at the importance of estate planning in a corporate setting and what documents you need for a proper legal base, as well as how different business structures should approach this subject.
Estate planning in a corporate setting is important for establishing the goals that you have for your business and taking the action necessary to ensure those goals are achievable even after your death.
By creating an estate plan for your role in a business you can:
The key is creating a plan that deals with the corporate side separately from the personal side. While the two may overlap (especially in family-owned businesses or transfers) estate planning should firmly outline wishes for business assets so that the financial and emotional burden on the family is dampened.
You can create plans for how you want your estate handled after death, but without the proper documents, there is no hard legal avenue for your plans to be enacted. At the very least you need:
The complexity and number of documents you need increases with the size of your business. Make sure you keep the documents updated as your corporate and personal situations change. You should have a professional look them over to advise you and ensure accuracy and validity.
Your will is a document, click here to learn about how to create a will, outlining how you want things to be handled after your death. You can use a will to explain:
When constructing a will it is important to appoint an executor that you trust to carry it out. This person may not be close to you emotionally, but as long as they have the mental capacity and willingness to conduct the business they should be a great fit.
Without a will, there is no legal guarantee that any of your wishes will be carried out, especially when handling business assets. Others will likely carry out estate business in such a way that does not line up with your wishes.
For example, without a will, the legal obligation leans to dividing your assets among your next of kin. This is a major difference from selling shares to business partners, but there is no way to guarantee that action.
Most advisors recommend that you write two wills if you need to deal with corporate holdings: a personal will that
A Power of Attorney (POA) is a legal document that permits another person to make decisions in the event of your incapacitation. This takes care of the gray area that often exists before death where an executor cannot use the will to act out your wishes.
For a business these decisions include:
A POA allows business to continue even if you are not able to handle affairs, reducing strain on any ventures you are involved in while you are incapacitated. To learn more, click here.
Establishing buy-sell agreements early on ensures a more seamless transfer of shares, regardless of whether these shares are absorbed by others in the corporation or transferred to a family member.
Buy-sell agreements can also provide the funds necessary to complete the purchase of these shares when tied into corporate life insurance policies. The policy provides the funds necessary to buy out shares that would otherwise transfer to family, but this intent should be stated on the policy.
The extent of your estate planning needs to fit the structure of your business, regardless of whether you are acting as a sole-proprietorship or you sit on the board of directors at a major corporation.
Each business structure has its own set of details that need to be considered, and approaches differ at each level.
In a sole proprietorship you own all the business assets, and you take on all liabilities associated with the business. This means that when you are handling your estate it can be more difficult to separate business assets from personal ones, and creating a plan is essential to keeping separating things.
This plan should explain how the business should be handled after your death, whether you want it to continue under a different owner or be shut down. If you want to hand the business off then try to decide on who would be able and willing to operate it, or specify whether it should be sold.
A will is essential to enacting this plan, along with an executor capable of carrying out these instructions. Without a will, there is no way to determine your wishes, and there is no legal obligation to treat your business in a specific way.
In a partnership between two or more persons you have much more on your plate. Not only is your family depending on you to create an estate plan to manage your assets and final wishes, but your partners need proper planning so the business can continue.
Failing to construct an adequate plan can lead to the dissolution of the partnership, regardless of how many partners still survive.
Your plans should reflect what you agree to with your partner and these plans need to be written into an actionable will.
In a corporation, the business remains even after you die, regardless of any dependencies on your position. It must continue to meet any obligations in place, and the directors and officers left behind are responsible for overseeing this operation.
Estate planning allows the board to address concerns and obligations with little interruption. It also outlines how your shares are to be distributed after your death and can facilitate any transfers of assets or power.
Estate planning is not something that should be done lightly. Sim Gakhar can help point you in the right direction, protecting both your business and personal assets and setting your estate up for a more seamless experience after death.
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