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Your Business and Your Estate Plan

Consider these simple steps to help protect your business should the unexpected happen to you.

business owner and colleagues

Most people understand that sound financial planning includes creating documents like wills and powers of attorney to outline what happens to assets if the unexpected occurs, but many business owners fail to take those steps to help secure the future of their businesses. If you’re a business owner, you need an estate plan that covers the business — not just you.

“The worst-case scenario is the business loses all of its value,” says Eric Smith, Senior Business Transition Strategist for Wells Fargo Private Bank. In those cases, the family loses all of its income and support — and employees may lose their jobs. Or, if the owner dies and the business is worth enough to trigger estate tax liabilities, the owner’s heirs may be stuck with a tax bill that forces them to sell the company’s assets to pay it.

A key to preventing scenarios like these? Planning.

Gather input from all your advisors

Smith suggests owners assemble their team of professional advisors — including an estate attorney, a tax advisor, and a financial advisor. For larger or more complex businesses, the team of advisors may include a business transition advisor, a corporate attorney, a life insurance specialist, and a corporate trustee. Ideally, he says, one of those advisors is then appointed to lead the team as they develop contingency plans.

“Business owners who develop plans and involve both management and family in the planning do the best.” — Eric Smith, Senior Business Transition Strategist, Wells Fargo Private Bank

The elements of the plan will depend on the kind and size of the business, your wishes, your partners’ wishes, and other factors. For example, some owners hope to pass a business along for one or more children to run. Others plan to sell it — to a partner, to current employees, or to an outside buyer.

Start by getting input and sharing information. “Business owners who develop plans and involve both management and family in the planning do the best,” Smith says. That means talking to partners, heirs, and key employees to make sure everyone has the chance to offer input and that they understand the details of the plan.

Test for a smooth hand-off

Planning should take into consideration liquidity, succession, and more. When an owner dies, for example, bank loans or lines of credit may be due immediately, which can threaten a business’s ongoing cash flow. That’s why Smith recommends asking your advisory team to do a trial analysis to see what liabilities will spring up.

In some companies, a clearly identified successor may be necessary so operations can continue. The successor you choose can then help continue to run the business, transition it to new leadership with an heir, or prepare it for sale.

Ask this question earlier rather than later

In all of this, Smith says, the question to ask is, “Where do I want the business to go?” That’s the question that will help you guide your advisors, partners, heirs, and employees. Ideally, you’ll start having conversations based on that question at least five, or even 10, years before you plan to exit the business. And then it’s critical to ensure your wishes are documented — and that your estate plan is coordinated with your business documents. It’s the combination of effective communication and the strength of your advisory team that helps determine the success of your plan — and the fate of your business.

Mark Tosczak is an experienced business writer and marketing consultant based in North Carolina. Image by iStock

What can Wells Fargo do for you?

Investing in a business or commercial real estate requires a strategic approach. Let’s work together to create a plan that matches your vision.

Wells Fargo Wealth Planning Center, part of Wells Fargo Private Bank, provides wealth and financial planning services through Wells Fargo Bank, N.A., and its various affiliates and subsidiaries.

Wells Fargo & Company and its affiliates do not provide legal advice. Wells Fargo Advisors is not a tax or legal advisor. Please consult your legal and tax advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.


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