As a business owner, you have many responsibilities, and estate planning may not be high on your priority list. However, failing to plan adequately can have significant consequences for your business and family. Estate planning is a complex process that requires careful consideration of various factors, and there are several pitfalls that business owners should avoid. Keep reading to learn the common estate planning mistakes that business owners make and provide guidance on how to mitigate them.
Estate Planning Pitfalls to Avoid for Business Owners
Not Valuing Your Business Correctly
One of the most common mistakes that business owners make is not valuing their business accurately. Business valuation is a critical aspect of estate planning, as it determines the value of your business and the assets that will be transferred to your beneficiaries. A business valuation can also help you plan for taxes and potential liquidity needs. Therefore, it’s important to work with a qualified professional to ensure that your business is valued accurately and consistently.
Overlooking Buy-Sell Agreements
Buy-sell agreements are essential for business owners who have partners or co-owners. These agreements outline how ownership interests will be transferred in the event of death, disability, or retirement. Failing to include a buy-sell agreement in your estate plan can lead to conflicts and disputes among co-owners or beneficiaries. Therefore, it’s important to discuss buy-sell agreements with your partners or co-owners and include them in your estate plan.
Failing to Plan for Incapacity or Disability
Planning for incapacity or disability is often overlooked in estate planning for business owners. However, if you become incapacitated or disabled, your business may suffer without proper planning. It’s important to include provisions in your estate plan that address how your business will be managed in the event of your incapacity or disability. This may involve appointing a trusted person to manage your business affairs or creating a power of attorney to give someone the authority to act on your behalf. Always make sure you discuss your plan with any of the people you are appointing to take over in the case of an emergency. Leaving them with no instructions can be detrimental to your business.
Neglecting to Update Your Estate Plan Regularly
Estate planning is not a one-time event; it requires ongoing review and updates to reflect changes in your personal, business, and financial circumstances. Neglecting to update your estate plan regularly can lead to unintended consequences and invalidate certain provisions. It’s important to review your estate plan periodically, especially after major life events such as marriage, divorce, or the birth of a child. Always contact your estate planning professional if you feel you need to update your plan. Not doing so can add more stress to your successors.
Estate planning is a complex process that requires careful consideration of various factors, especially for business owners. By working with a qualified professional and following best practices, business owners can ensure that their estate plan is comprehensive, up-to-date, and aligned with their long-term goals. Don’t wait until it’s too late to start planning for your estate; contact a trusted advisor today to get started on creating a comprehensive estate plan that meets your unique needs and goals.
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Disclaimer: This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is a substitute for, qualified legal advice. Your review or receipt of this article by Lexern Law Offices, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this article are those of the authors of the article and does not reflect the opinion of the LLG.