Successful businesses are the result of years of hard work, determination, and sacrifice by business owners and their families. As such, most business owners want to preserve the product of their hard work for the benefit of their families and loved ones after they’re gone. They also want to ensure their business does not falter or fail after their retirement or death, if the business can remain viable. Proper estate planning can help achieve both goals.
In its simplest form, estate planning is the process of executing documents and designating agents to manage and transfer an individual’s assets in the event of their incapacity or death. Common estate planning documents include wills, trusts, financial powers of attorney, and health care powers of attorney. For business owners, the estate planning process should also include analyzing and taking appropriate action regarding the individual’s business interest(s).
The term “probate” refers to a process that occurs after the death of an individual. The “probate process” typically involves a deceased individual’s agent, known as a personal representative or executor, filing a lawsuit to be granted court authority to gather and distribute the deceased individual’s assets, including the individual’s business assets. The probate process can often be very expensive and time consuming. As such, most estate plans include documents and actions that seek to avoid probate.
Transitioning Business Ownership
Typically, an individual’s business interest(s) can be transferred to another person or entity, either during life or at death. Proper estate planning can utilize the transferability of an ownership interest to:
- Avoid probate;
- Transfer ownership to the owner’s family or others (for example, a key employee);
- Account for the financial needs of the owner during his or her life;
- Provide for the continued operation and management of the business;
- And designate who will benefit from the business interest, or the proceeds of the ownership interest if the interest or business is liquidated, in the event of the owner’s incapacity or death.
The sale or transfer of a business interest can generate unwanted tax consequences, such as capital gains or losses and unexpected income. A proper estate plan can account for such tax consequences and seek to limit them.
Help with Estate Planning for Business Owners
If you would like to learn more about estate planning for business owners, contact your local Wyoming Small Business Development Center (SBDC) Network advisor for no-cost, confidential assistance.
You may also want to join our upcoming webinar series, Estate Planning for the Small Business Owner, on March 5, 2020 where we will address these issues in more detail.
About the Author: Jessica Schneider is an attorney with Hirst Applegate, LLP Cheyenne office. Her practice focuses on estate planning, estate administration, trust administration, creditor’s rights, banking real estate and business law. Jessica graduated from the University of Wyoming College of Law in 2008.