Small business owners in California should factor in their business when preparing their estate plan. This can make the ownership transition easier and the estate management more straightforward after their death. Proper planning can help minimize estate taxes and provide financial security for the chosen successor or the heir.
Estate planning for entrepreneurs
Entrepreneurs should prioritize estate planning due to the numerous considerations that need proactive attention.
For instance, without an estate plan in place, state law in California will determine the distribution of the business owner’s assets. Typically, assets would be divided among children and spouses, which may not align with the entrepreneur’s wishes, especially regarding the business. To avoid such outcomes, entrepreneurs should establish a trust or will as a part of their estate plan that specifies allocating their business assets.
Additionally, part of estate planning involves identifying who will assume control of the business in the event of the entrepreneur’s passing. While a spouse may receive money or property, they may not necessarily possess the skills or desire to manage the business effectively. In such cases, entrepreneurs should consider appointing a key employee, friend or executive to oversee the business operations. This ensures continuity and effective management.
Involving a third-party
It’s advisable not to solely designate your spouse as the executor or trustee of your estate. If your spouse assumes this role, they would be responsible for either managing your business themselves or making decisions regarding its sale. However, by appointing multiple trustees, such as your spouse for personal financial assets and another individual for your business, you can ensure that your business affairs are handled by someone knowledgeable and capable, ultimately benefiting all parties involved. Your family dynamics influence the decision regarding trusteeship, your spouse’s involvement in the business, and their suitability for managing business affairs.
Some individuals delay estate planning because they find it difficult to contemplate hypothetical scenarios. However, considering what will happen after your passing and making appropriate arrangements demonstrates your care for the business you’ve built and your desire to ease the burden on your loved ones in the event of your death.