For small business owners, estate planning is a big deal. Often, small business owners have much of their family’s wealth tied up in a sole proprietorship, partnership or closely held corporation. With this in mind, estate planning becomes an absolute necessity for small business owners. But there are no set rules for estate planning for small business owners, and tactics for dealing with the business often depends on the founder’s ownership style and how the business is run.
There are three categories that small businesses generally fall into:
Many service oriented businesses revolve around the owner and the specific services they provide, such as a doctor, lawyer or accountant. The businesses are typically run with the understanding that once the owner/service provider dies, the business will too.
2. Family business
Other businesses are intended to stay in the family for generations to come, and they are run with the goal of the children becoming involved in, and eventually taking over, the business.
Many large businesses start as small businesses that are marketable, and therefore either expanded by the owner or purchased by larger companies for expansion.
Each category of small business will have different estate planning needs, so it’s important to identify where your small business stands in terms of goals and its future once the founder passes away. Estate planning for the ‘owner-centric’ small business may be particularly challenging, as establishing the value of the business will be an issue when it may, in fact, lose much of its value upon the owner’s death.
Estate planning is an important part of owning a small business, and the first step is to identify which category your business falls into, the second step is to work with an estate planning attorney to help establish a plan to further your business and family’s goals.