Active Ownership: Planning for Business Owners

This is a general reminder that ownership of a closely held or family business should be integrated in your estate plan. While sophisticated planning can be done to maximize estate and gift tax treatment, even those who do not have estate tax concerns can benefit from pre-planning. In situations where the owner is the manager of a business, providing the correct authorizations for agents and trustees to act on your behalf can save your business legal costs and delays associated with an important manager/owner falling ill or worse.

Your powers to manage your business are often tied to ownership in small, closely held, and family businesses. Unless specific planning is done in the business entity documents, owners have many voting rights tied to either making management decisions or deciding to remove and replace managers. Unfortunately, if the ownership is in your name (rather than held in a trust), then a court must appoint a representative to act for you in situations of incapacity or death. Appointing this appropriate conservator or administrator could take months and cost thousands. Any small business owner knows that few decisions can wait months and few balance sheets can easily take that hit.

However, doing an attorney advised estate plan and making sure your attorney knows you own a small business can help avoid the courts. Creating an appropriate Trust and Durable Power of Attorney document, funding/assigning as many interests in the Trust, and ensuring both documents have business interest powers built in can be the solution. This plan allows the owner to assign someone the power to make decisions and sign documents on behalf of the business owner in times of incapacity or death. Because the person was pre-designated, there is no need for the court’s delays and costs.

Thus, business owners can benefit from having their business interests included in their estate plans. If you have a plan but it was done before creating the business or without discussing it with the attorney (or if the plan was not attorney advised), then there are benefits to be gained by revisiting the plan and incorporating your business interests.