Estate Planning for California Small Business Owners

Shot of a man and woman using a laptop while working on a project together in a workshop concept for: estate planning for small business owners.

Estate planning is important for everyone — but it’s even more critical for small business owners. If you own a small business, estate planning is essential to ensure the legacy you worked so hard to build is preserved for future generations. While the unexpected can happen at any time, it’s vital to have a strategy in place that will protect your company and carry out your wishes. Specifically, entrepreneurs should consider implementing measures for business succession planning, tax planning, and strategies to safeguard their intellectual property.

What Should an Estate Plan for Small Business Owners Include?

A last will and testament is not the only estate planning document a small business owner should have in place. While every small business owner’s estate plan will look different, there are a number of tools that are commonly used to plan for the future. Based on your needs and goals, estate planning for business owners may include the following documents:

  • Financial power of attorney — A power of attorney gives another individual the authority to act on your behalf if you become incapacitated. This can help to ensure the business continues to operate if you are unable to run it yourself. For small business owners, the powers granted in this document may be in connection with a specific business activity or provide the attorney-in-fact with broad powers to make financial decisions for the company on your behalf.
  • Trust — A trust can be a crucial tool when it comes to estate planning for business owners to minimize tax consequences and pass assets to loved ones outside of probate. It can also establish the process for appointing a successor and keep the company intact. In addition, a trust can give shareholders a say by requiring unanimous consent to take certain action.
  • Buy-sell agreement — A buy-sell agreement is a contract that specifies how a partner’s share of a business may be reassigned if they pass away or retire. These documents may also determine the method for valuing a business in such cases.
  • Life insurance policy — A small business owner’s life insurance policy can provide the liquidity needed so that the company can continue operating during a change of leadership. A life insurance policy can help to ensure your family has a source of income if they lose access to the company’s funds when you pass away. It can also be used to cover the cost of replacing a key employee and buy out a partner’s share from their family in the event they pass away.

Estate planning for business owners is an ongoing process. As your business grows, it’s important to review your estate plan at regular intervals to ensure it still reflects your wishes. By having a comprehensive estate plan in place, you can help to safeguard your business assets and provide for your loved ones in the way you intend.

Creating a Business Succession Plan

Business succession planning is a crucial aspect of estate planning for business owners and entrepreneurs that can help to reduce the potential for conflict among members of your family or business partners. A business succession plan dictates who will take over your business in the event you decide to retire, become incapacitated, or pass away. Depending upon how you structured your business, you might choose to pass it on to a child or other family member, sell your shares to a partner or third-party, or close the business. In addition, a solid business succession plan should include provisions that help employees transition during the change of ownership and management.

A good business succession plan can accomplish the following:

  • Ensure continuity after your passing
  • Provide the structure needed for a smooth ownership transition
  • Create a roadmap for a change in management
  • Protect the interests of your business
  • Provide direction for the future of your company
  • Encourage a dialogue between you and your successors
  • Minimize disputes
  • Avoid adverse tax implications
  • Increase the value of your business

Business succession planning is not one-size-fits-all. The process involves a substantial amount of preparation — and a plan should be reviewed on a regular basis. Once the plan has been created, it must be implemented to ensure your successors have the training needed to take over the business in the future without disruption.

Contact an Experienced California Estate Planning Attorney

If you are a small business owner, having a comprehensive estate plan in place is vital to ensuring your company is protected and your wishes are carried out in the future. The attorneys at White & Bright, LLP have extensive experience assisting entrepreneurs and business owners in California with their estate planning matters. Call us at (760) 747-3200 or fill out our online contact us form to schedule a consultation to learn how we can help.