Business owners pour their blood, sweat, tears, and years of their lives into building a successful company. Succession planning is a key aspect of every business, but have you thought about what happens to your business when you die?
Or, perhaps you fall ill or experience a life-altering injury? The key to protecting your legacy is will and inheritance planning. It’s the safest way to secure the business and ensure your family gets what they deserve without taking massive tax hits.
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The Assets
When you sit down with a will and estate lawyer to draft your estate plan, you have to understand the difference between personal and business assets and how they’re owned. Are they personally owned by you? Is there a joint ownership, company ownership, or a trust? This is key to determining how you can plan your estate to pass these on efficiently. If you own it personally, you can put it in your will. Talk to your estate lawyer about the other assets you hold.
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Potential Scenarios to Consider
The most effective estate plan factors in a range of situations for you to leave the business, whether it’s death, illness, retirement, or an accident. That will ensure your legacy is protected in any eventuality and also protect your family’s interests.
You can protect your business with a power of attorney, insurance, and shareholders’ agreements. For example, a power of attorney can be a trusted person who steps in to take over if you are unable to continue. Insurance will keep your business afloat while things are put in place.
A shareholder agreement is a must if there are partners involved, as this will outline what happens to your shares. Binding financial agreements can also play a key role in protecting both personal and business assets in the event of relationship breakdowns.
Of course, the will is the cornerstone of everything. These details precisely how you want your personal assets to be distributed.
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The Tax Implications
The business structure can have tax implications. Many business owners use trusts to ensure the smoothest transition possible and also as a tool to reduce the tax burden that beneficiaries may face upon your death. For example, there are different tax burdens for passing on sole traders, partnerships, trusts, etc.
It’s worth discussing your current structure and whether a change will save you money later. While you can gift your shares to employees or families, there are tax implications, and it’s worth discussing with your financial advisor to ensure it’s as tax-efficient as it can be.
Using trusts can protect an estate against tax burdens. So, this is something you should discuss with a financial advisor and your will and estate lawyer. You must ensure your estate plan aligns with regulatory requirements as well as your personal goals.
The only way to ensure this is by working with a specialist. Additionally, you can transfer business wealth to your superannuation fund, which is a great way to plan your retirement and avoid a heavy tax burden.
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Future-Proofing Your Business
The will reading shouldn’t be the first time anyone hears the plan. You can start succession planning now; the sooner, the better! Whether you plan to pass the torch to your eldest child, your longest-serving employee, or someone else, once you identify your successor, you should be providing them with mentorship so they’re ready to take over when you depart.
It isn’t enough to use your will and inheritance plans to crown your successor and ensure the safety of your business; you have to set them up for success to ensure the continued success of your business.
It’s also wise to have a professional valuation of your business because having an accurate number will help you make appropriate plans, whether you’re passing the business to someone or selling.
If you do plan to keep the business in the family, be transparent with your family members to avoid will challenges or family squabbles. Everyone likes to think it won’t happen to their family, but it’s best to plan well enough that nobody finds out.
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Final Thoughts
There is a feeling of doom and gloom when it comes to estate planning because nobody wants to think of the end of their lives. However, putting concrete plans in place will give you peace of mind knowing that your family is taken care of and that your business is safe and set for success long after you’re gone. Now is the time to draft your succession plan, explore the different tax-efficient strategies, and put it on paper.
