Starting a business requires considerable resources from the owner. You have to spend time, money, blood, and sweat to bring your vision into reality.
A lot of entrepreneurs work hard to ensure that their family, especially their children, have a better life ahead. If this is one of your primary motivations, it makes a lot of sense for you to plan for the future of your estate and assets as early as possible.
Estate planning is the process of settling your legal affairs, particularly with your belongings, money, and investments. With this, you can be assured that your family business and other assets would be enjoyed by your heirs without any problems. Learn more about this service at www.milehighestateplanning.com.
Here are the reasons why estate planning is important for family business owners:
1. Future-Proof Your Enterprise
Estate planning is all about preparing your business so that it can continue operating even when you’ve passed. It might seem morbid to think about death when you’re in the peak of health, however, it’s prudent to acknowledge that there are things out of your control and to prepare for such risks.
It makes a lot of sense business-wise to put up measures that will allow you to future-proof your enterprise. Estate planning is a practical way of ensuring that your company would survive and thrive after your children have taken over the leadership.
2. Take Care Of Your Beneficiaries
If you’re a parent, you would want to ensure that your heirs would be able to reap the fruits of your labor through your business. Having an estate plan would ensure that your beneficiaries receive their rightful inheritance.
For those with very young children, estate planning is a means to eliminate the risk of sending your kids to child protective services. As unpleasant as it might be, leaving your family would result in a significant financial loss, especially if you’re the primary breadwinner. You ought to settle this affair clearly and avoid having the courts make this decision on your behalf.
On the other end of the spectrum, if you’re single, the first in line for succeeding your business would be your parents. An estate plan would eliminate the risk of legal entanglements. They wouldn’t need to file a case to be able to inherit your enterprise.
3. Minimize Your Taxes
Taxes, estate duties, and executor fees can take a sizeable portion of the wealth that you intend for your beneficiaries. Fortunately, a solid estate plan can decrease these types of financial burdens significantly.
Tax deductions are every business owner’s dream. Combining the different tools, such as insurance, companies, and trusts, can maximize the benefits that your heirs would receive.
A viable strategy for a tax-efficient wealth transfer is to use an intentionally defective grantor trust (IDGT). It’s an irrevocable trust that ensures that assets or funds placed into the account wouldn’t be taxable to the grantor, whether it’s for gifts, estate, generation-skipping transfer tax, or trusts.
You must remember that you’ll be the one who has to pay the income tax. This process makes the trust defective in a way because the assets have to be reported to your 104 as if the wealth is still your own. Nonetheless, the funds would be able to grow tax-free, and your beneficiaries would avoid paying gift taxes.
4. Prepare A Power Of Attorney
A power of attorney is a legal document that enables an individual or entity to make decisions about your property and finances on your behalf. Estate planning entails the creation of a power of attorney to ensure that the stipulations in your last will and testament would be executed to the letter.
The person you appoint to make decisions on your behalf doesn’t necessarily have to be your lawyer. You can name your spouse, eldest child who’s not a minor, or business partner to manage the business after your death.
5. Organize Critical Files
Another benefit of estate planning is that it allows you to organize the essential documents for your business and personal affairs. Your lawyer can assist you in making copies and ensuring that every file can be easily retrieved when the need arises.
Estate planning isn’t just for people with immense wealth. It’s also valuable if you have a family business because it ensures that your company would continue operating even after you’ve passed.
This process also allows you to take care of your beneficiaries’ future by maximizing how much they receive through tax cuts. Plus, you’ll have the power of attorney prepared already and all the crucial documents for a seamless transition in the future.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.