by Nick Mesirow
While exact numbers are unknown, anecdotal evidence tells us that a shocking number of small business owners have done little or no estate planning, including creating a revocable living trust or a will.
A lack of estate planning on the part of an owner poses a risk to their business because:
- Their heirs, as determined by a probate court, will inherit their assets, including their ownership stake in the business. This means that a business owner’s spouse or adult child may assume ownership of the business. These heirs may not be prepared to assume the deceased owner’s responsibilities, which can place the business in serious peril.
- While a probate court settles a will-less estate, the ownership stake is in limbo, and businesses won’t be able to make major business decisions without clear ownership
- A substantial portion of small business owners’ assets are tied up in their businesses. The owner’s family may be put in a difficult financial position while the disposition of the estate is ironed out in probate.
Business owners will find a desirable alternative to wills in documents called revocable living trusts. Reasons to pursue a revocable living trust in place of a will include:
- An estate with a will in place must still be disposed through a probate court. While having a will is preferable to no will, the probate process is still costly and time consuming. Settling an estate in probate also makes the disposition and details of your estate a matter of public record.
- Unlike a will, a revocable living trust can be crafted to protect you in the event that you are mentally incapacitated. The document can be crafted to codify how you would be declared mentally incompetent, and would put a trustee in place to manage your finances until you return to competence or pass away.
Revocable living trusts are more costly to create than wills, but investing in one is a form of paying it forward. When well done, they are simpler and less costly to execute and more comprehensive in their scope.
If you’re a business owner who needs to enact an estate plan, seek legal counsel. There is no time like the present to plan for the future.