Estate Planning for the Small Business Owner
Estate Planning is important for everyone, but it’s crucial for Owners of small businesses. Most people are excited about starting their own business and getting their ideas off the paper and out into the market. They often forget to address worst case scenarios of a failure of the business, debts, or a falling out of the business partners. A proper Estate Plan addresses all those concerns and adds protection to the owner.
The foundation of every small business owner should be a Limited Liability Company, an LLC. An LLC provides the Owner protection from creditors, lawsuits, and judgments by separating the Owner’s personal assets from the assets of the LLC. If the LLC is sued, only the assets of the LLC are at stake. The personal assets of the Owner are separate and safe, provided that the Owner follows their own attorney’s advice on keeping assets and contracts separate and properly titled.
The Operating Agreement for the LLC is the most important document for the LLC. The Owner will want it tailored to the needs of the Owner and their beneficiaries. They might need a buy/sell clause in the Operating Agreement, preventing the shares from being sold to strangers, keeping the LLC in the family. The addition of new members to the LLC is also an important point to keep in mind when creating an Estate Plan.
In addition to creating an LLC for protection, it’s also a good idea to create a Will or a Living Revocable Trust. If a Revocable Trust is created, the Business Owner can place their LLC membership interest in the Trust. The membership interest will bypass Probate and be distributed to the beneficiaries according to the Owner’s wishes in the Trust.
If there are Partners in the Small Business, it’s important to make sure all the Partners have an Estate Plan. If one partner passes away and doesn’t have an Estate Plan in place, the deceased Partner’s interest in the business could be tied up in Probate court for months or years, and then might pass to beneficiaries that may not care about the business.
With a Small Business, it’s also a good idea to have a Durable Power of Attorney created in case you are mentally incapacitated (for example, due to a car wreck) and the business needs a day to day decisions made. This Durable Power of Attorney allows someone the Owner trusts to step in and take care of the business until the Owner gets back on their feet.
These documents are all part of the Estate Plans we create for our clients. Estate Planning is something people drag their feet on, and only do it reluctantly, but it can save the Owners thousands and hundreds of thousands of dollars. At the very least, make sure your Partners have an Estate Plan in place when you go into business with them…if you don’t, it’s a recipe for disaster.
Blaise Regan is a Partner at Regan & Frisbie, PLLC, a law firm focusing on Wills, Trusts, Probate, Contracts, Business Formations (LLC, Corporation, S-Corp Designation), Business Disputes, DTPA claims, and Consumer Litigation.
Regan & Frisbie, PLLC is located at 7160 Preston Road, Suite 100, Plano, Texas 75024.
Comments or questions, feel free to email him at Blaise@RFPlawfirm.com or call him at 469.200.4737.
*Nothing in this Article is to be considered as the rendering of legal advice for specific cases, or creating an attorney-client relationship, and readers are responsible for obtaining such advice from their own legal counsel. This article is intended for educational and informational purposes only, and no warranty or representation is made as to the accuracy or completeness of the information contained herein.