Protect yourself, your family, and your business from potential creditors and predators.
Most Colorado business owners spend their whole life working hard to create a legacy for their family. Running a small business can be physically and mentally demanding, and it is not uncommon for accidents to occur on the job. It only takes one accident for a lawsuit to potentially wipe out an entire lifetime of hard work and savings for a business owner.
Although we always hope for the best, experience has shown that we should diligently plan for the worst. It is prudent for individuals and business owners to consider the estate planning tools that are available to them to protect their assets and future legacy. Estate planning can protect your business from:
- Excessive estate taxes (or death tax). Should you pass away, a tax of 35 to 50 percent of the business’ value is due to the IRS within 9 months of your passing. Such a tax is a common reason why businesses cannot carry on after an owner passes.
- Disruption and potential liquidation. If a co-owner becomes incapacitated, without any directions, their spouse/family may fight with the surviving owner over what should happen with the business.
Depending on your needs and personal situation, there are various estate planning tools one can utilize, such as:
This is a good option for a business owner who co-owns their business with one or more persons. Let’s say Jim and Nancy co-own a bed and breakfast. Jim suddenly becomes, ill, dies, has to file for bankruptcy or decides to retire. A buy-sell agreement protects both owner(s) interest in the company, as well as keeps your business intact – safeguarding against family/co-owner/spouse infighting and subsequent liquidation.
Basically, it is a prenup agreement between co-owners. As a binding contract it allows co-owners to control howeach owner is allowed to sell their share of their company – this is done by dictating when an owner can sell, who they can sell it to and at what price they can sell.Without such an agreement, if one owner becomes incapable, then the surviving owners are left without direction, causing disruption to the business and perhaps financial disaster.
In addition to protecting the business from disruption and co-owners from financial distress – this type of agreement also protects an owner’s family’s investment. For example, if an owner passes away, without a buy-sell agreement already in place, the surviving spouse is usually forced to sell their share of the business at an unfair, heavily discounted price (usually to the surviving owner), just because he or she is unable to operate the business.
Living Trusts and Wills
Wills and trusts can be useful for a variety of reasons. For those who have children, they can arrange guardianship for minor children, provide future care for disabled children, and safeguard assets that are set aside for them. For small business owners, a trust is useful for protecting assets, creating a line of succession for your business, and minimizing estate tax liability. Without a trust, your assets and business will have to go through probate court; leaving your family to deal with legal fees, court costs, and to square off with contentious relatives and creditors in the division of your assets.
Power of Attorney
This document allows a business owner to appoint another person to manage your financial affairs, make healthcare decisions, and conduct other business on your behalf should you become incapacitated. Having power of attorney documents in place will give you and your loved ones peace of mind now and especially later, at a time of personal stress and emotional upheaval.
Don’t allow yourself, your family or your business to become a victim of unfortunate circumstances. By preparing now for the future, our clients have the peace of mind that only comes from knowing their options and creating a plan to minimize their exposure and protect their assets.