Stop me if you have heard this one before. There once was a small business owned by a couple here in Houston. He focused on the day to day operations while she kept the books and made sure everyone’s checks cleared. One day she was in a terrible car accident, and she passed away. The next day was pay day. Nobody got paid that day, but they knew the owner would set things right once the shock wore off.
A few days later, the boss was back in the office. Then the IT guy who comes by every once in awhile shows up. Apparently nobody but the deceased co-owner had the password to her computer, or any of the online accounts needed to pay the bills.
In the breakroom, the IT guy lets slip why he is there and laments that fact that he can’t believe nobody else knows the company computer’s password. One of the longest serving employees exclaims, “Have some respect for the dead!” The IT guy replies “Is that all lower case?”
*Ba Dum Tss!*
Seriously though, estate planning as a business owner is much more complicated than regular estate planning because you are essentially crafting two plans — one for yourself, and one for your business. Below are four tips we urge business owners to take to heart as they begin the estate planning and succession planning process.
- ICE It
Before getting into the weeds, or getting overwhelmed by the estate planning process, think about what would need to happen for your business to operate if you were suddenly incapacitated. Who should take over and run things in your absence in the short term in case of an emergency (ICE).
Talk to the people you have identified and find out if they are comfortable being given power of attorney over your financial and legal affairs. Modern day power of attorney documents can be drafted so that they only spring into action should their creator become incapacitated, but you probably want to start involving the person you have identified in your decision-making so the transition is as smooth as possible.
- Nothing is sure but death and taxes.
Depending on how a business is owned and how much it is worth, estate taxes can become an insurmountable burden. Estate taxes can be as much as 50% or more of the total value of a business, and typically must be paid within nine months of the owner’s death. Few businesses have the liquidity needed to make this kind of payment on this short of a timeline.
- Invest In Life Insurance
Speaking of liquidity, the way most businesses ensure they have enough cash to pay the bills after an owner’s death is by purchasing life insurance that names the business or other business partners as a beneficiary.
- Organize Key Records
Finally, as the joke at the start of this post reminds us, gather together all the passwords, keys, and important records that will be needed for your temporary or permanent replacement to take the reins. Make sure they know not just where these items are, but how to use them.
Don’t leave your business in a lurch if you become incapacitated or suddenly pass away. The time you spend thinking about and preparing for the inevitable will pay dividends in the future.