If you are one of the millions of Americans for whom owning a small business or family farming operation is part of the American dream, you undoubtedly want to make sure your business continues or that your loved ones profit from the value of the business if you become incapacitated or die. The only way to do that is to include business planning in your comprehensive estate plan. Whether you own a family farm, a corner store, or an online tech business, by including business planning in your estate plan you can rest assured that your hard work and success will not go by the wayside should something happen to you.
Why Is Business Planning Necessary?
Like many small business owners and farmers, you may be so caught up in the day to day struggles of running your business that you have not had time to consider what would happen if you were suddenly to become seriously ill, suffer a severe injury, or even die. Take a moment now to ask yourself the following questions though:
- What would happen to your operation if you died tomorrow?
- What would happen to your operation if you were in a catastrophic accident next week and were incapacitated as a result?
- Who would buy out your interest in the operation if no one plans to continue running it?
- Who will take over your operation when you retire, die, or become incapacitated?
- Is your successor prepared to step into your shoes?
- Are there sufficient liquid assets to cover the tax implications of your death?
- Do your children know your plans for your operation?
- Will there be conflict because of your chosen successor?
- Are any of your plans for the future of your operation in writing?
There is a very good chance that you do not know the answer to the majority of these questions because you have not taken the time to consider them in any great detail. You may have discussed the future of your business with your adult children, or even with a business partner; however, if those discussions have not been reduced to an agreement in writing they are not legally binding, meaning they are of little help.
How Can Business & Farm Succession Planning Help?
Business succession planning is a component that can be included in your overall estate plan to help ensure that there are plans in place for your business should you become incapacitated, decide to retire, or die. Just as your business is unique, so will your business succession plan be unique; however, most plans include things such as:
- A buy-sell agreement if you plan to sell the business when you are no longer able to actively participate in the running of it.
- A life insurance policy that will ensure there are funds available to cover the tax implications of the business changing hands if you plan to pass it down.
- A formal business structure, such as a Family Limited Partnership, aimed at transferring ownership to the next generation if that is the plan.
- A written plan for when and how the transfer will be made if you plan to pass the business down.
What Happens without Business or Farm Succession Planning?
Less than 20 percent of all businesses make the transition from one generation to the next. The primary reason for this is lack of planning. Failing to anticipate the tax consequences of transferring ownership is one common reason for the failure. Another common cause is simply failing to ensure that the next generation actually wants to continue to run the business. When that is the case, and plans have not been made ahead of time to sell the business to someone else, the family often ends up taking the first offer they get, often losing out on the majority of the true value of the business. Either way, the value of a business owner’s hard work and sacrifice is not recognized in the end. Do not let this happen to you!
By taking the time now to include business planning in your estate plan you ensure that your business will survive the transition to the next generation, or that your family will truly profit from the sale of the business when you are gone.
If you have additional questions about business planning in the State of North Dakota please contact the experienced estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.