Estate Planning for Business Owners

In many of our law firm’s articles, we try to impress upon our readers the importance of completing an estate plan. We describe potential problems, conflicts and expenses that a well-drafted estate plan can help prevent and address, if necessary. For a small business owner, completing an estate plan is particularly important because running a business involves more complexity than a typical household, and there are additional issues to consider. So in this article, I’ll explain how an estate plan for the business owner is good for the strength and future success of the business.

So, what should a business owner have in place?

First, a business owner should complete a Power-of-Attorney (POA) document, and one that authorizes someone to act on behalf of the owner for business matters. A POA that grants all powers to a trusted individual, such as the business owner’s spouse, would be appropriate. Another option is to put in place a POA that’s limited to business operations, and such a limited POA could authorize a trusted employee or other individual to act on behalf of the owner.

Second, a business owner should address succession for the ownership of the business by completing an estate plan. In a will or trust, the owner can state what happens to the business assets when the owner passes away. Through the estate planning process, the business owner can also review how business and other assets are titled to make sure they are appropriately titled in the business (or not), and that probate and other transfer issues upon death can be avoided.

When a business is owned by more than one person, a well-drafted buy-sell agreement is very important for addressing succession. The terms of a buy-sell agreement address ‘what happens when something happens’. In other words, if one business owner dies, becomes incapacitated, puts the business at risk, or simply wants out, the buy-sell terms set forth the process by which the remaining owners may buy out the affected owner.

One of the most important benefits of putting in place a buy-sell agreement is for owners to come to an agreement before ‘something’ happens and when they are in a neutral and equal position. One a buy/sell agreement is in place, then each individual business owner should complete an estate plan that complies and works with the terms of the buy/sell agreement.
Third, there are a number of tax considerations when it comes to the transfer of a business during a person’s life and at death, and these issues should be reviewed and discussed with a qualified estate planning attorney and tax advisor. Lastly, a business owner may consider life and disability insurance policies to provide funding to the business in the event the business owner is no longer there to run it.

Any requests for topic suggestions may be sent to Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it.