How to Prepare for Family Peace Especially While Owning a Closely Held Business

Estate planning is an important part of life that helps ensure the transition of personal and real property to those who you want to receive it.  Estate planning is a great gift to your family and friends and can provide great direction as to how you want matters addressed or used after your death.  Within families, estate planning can help provide peace and reduce arguments among the surviving family.

The following are some of the tools available to use for estate planning.

1. Last Will and Testament. A will outlines how a person’s assets, including business interests, will be distributed upon death. If you own a closely held business, if the company ownership has not been transferred before death, your will should address whether you want to leave your ownership interest in the business to family members, key employees, others or a trust.
2. Revocable Living Trust. A revocable living trust could help transfer business interests You can designate the trust as the owner of your closely held business, allowing for smooth succession without the need for court intervention.
3. Buy-Sell Agreement.  A buy-sell agreement is crucial if you have multiple owners or partners in the business. This agreement outlines how shares of the business will be bought or sold in the event of death, disability, or other triggering events. It typically specifies who can buy out the deceased’s shares, how the price will be determined, and the process of transferring ownership.
4. Power of Attorney (POA).  A power of attorney allows you to appoint someone to manage your business interests if you become incapacitated. The POA should clearly define the scope of authority over business matters, such as signing contracts or making financial decisions.
5. Healthcare Directive/Healthcare Power of Attorney. A healthcare power of attorney allows you to designate someone to make healthcare decisions for you if you are unable to make them for yourself. While not specific to the business, it is essential for overall planning, particularly when combined with a POA.
6. Family Limited Partnership (FLP) or Limited Liability Company (LLC) Documents.  If your business is organized as an FLP or LLC, you’ll need to have documents governing the structure of the entity, including operating agreements or partnership agreements. These will clarify how the business operates, how ownership is transferred, and how profits are divided. Estate planning documents should reference these agreements to ensure smooth succession.
7. Business Succession Plan.  A business succession plan is a detailed strategy that outlines how your business will continue in the event of death, retirement, or disability. This may include decisions about which family members, employees, or external buyers will take over the business and how ownership interests will be transferred.
8. Life Insurance Policies.  Life insurance can be used to fund the buy-sell agreement or provide liquidity to the business or heirs. If you’re passing on business interests to family members, life insurance policies can help provide them with the funds necessary to cover taxes, debts, or buyouts.  It is important to make certain that you know who is listed as the beneficiary or beneficiaries.
9. Key Person Insurance. For businesses where one or a few individuals are integral to its success, key person insurance provides funding for the business in case one of these individuals passes away. This should ensure business continuity and helps avoid disruption to the business’s operations.
10. Estate Inventory and Valuation of Business.  A detailed inventory of assets, including the valuation of your closely held business, is essential for ensuring that the estate plan is up-to-date. The valuation will be necessary for tax purposes and to determine fair compensation for the transfer of the business.
11. Inventory of Investments/Financial Accounts. Along the lines with having an inventory and valuation of the closely held business, it is important for each individual to keep an up-to-date list of investments, financial accounts, account numbers, and how to access the information.  Today, it is even more important to have information for your family or those helping you to determine how to access the information regarding your assets given that most of the information is now electronically maintained.

The above list of tools is a great start to helping make sure your assets are transferred how you want them to be.  Not every estate plan is the same and not all of the above tools are required.  An estate plan should be specific to you, your assets and how you want to convey the assets to others.

If you have any questions, please feel free to contact us.