Everyone should have a Will and plan for what happens to their assets after they are gone.  For business owners, issues beyond basic estate planning, like estate taxes and asset protection, make having a carefully considered estate plan of utmost importance.

Estate Taxes

Federal estate tax is imposed on an estate when the value of the estate exceeds $12,920,000.  For many, that may not be a concern, but for successful business owners and for those whose business might increase in value, minimizing this tax should be a concern.  Additionally, states like New York impose their own estate tax, with the New York State estate tax being levied after the value of the estate exceeds $6,580,000.  For estates with liquid wealth, payment of estate tax, while unpleasant, is not unmanageable, but for estates with illiquid assets like private company interests or real estate, that may mean assets have to be sold to pay the taxes.  This can result in the loss of a family business and/or an unplanned sale that results in less value being obtained.

Asset Protection

In the absence of a Will, the assets of an “intestate” estate are distributed outright to the deceased person’s heirs.  That may not be ideal, as the heir may have creditors or a divorcing spouse.  The heir could also be a person who is not reliable with money or has a drug or alcohol addiction and is likely to squander the inherited assets.  That is why Wills (and its estate planning cousin, the revocable trust) often create trusts through the document to hold assets for beneficiaries, in addition to potential estate tax planning benefits.  

Succession Planning

In many businesses, the founder would like his or her children to become involved in the business.  When that happens, the founder may want to leave more company shares to the children who worked for the business, while at the same time not disinheriting the children who pursued other careers.  There are different issues and approaches to consider here to satisfy the founder’s wishes while avoiding family disputes.  For example, without a Will each child may inherit an equal amount of shares which may not be the founder’s wish, and this can lead to stalemates or disputes over the company’s management.  Through the Will, thought can be given as to how to benefit children equally but at the same time reward children who worked in the business.  For example, consider giving more company shares to the children who worked for the business, but equalizing the total inheritance by giving the non-employee children additional assets elsewhere.