New to the Family Business? Here’s 3 things you should know

If you’re about to join your family’s business, or you’re an entrepreneur starting your own, the last thing you want to think about is, “What if something goes wrong?”

However, estate planning for businesses, especially those that are small and/or family-owned, is an important part of running the business. This type of planning is sometimes described as “succession planning,” and it forces small business owners and entrepreneurs to come up with a plan for every worst-case scenario.

It is an inherently difficult and uncomfortable kind of work, but for a business to survive, it is absolutely vital. So, consider these tips:

Organize your files now

This component of planning does not incorporate any legal advice; it is merely a practical tool to help you and anyone who works for you to be able to retrieve vital documentation quickly. In addition to the simple good practice and usefulness of having your files organized, it is absolutely vital to keep financial records in some sort of order,  and to inform another person of where they are stored and what they contain. Whether this is a fireproof safe or a filing cabinet, everything should be stored in an organized fashion, and you should tell someone where the documents are and what exactly is in that cabinet or safe.

Draft a will and a financial power of attorney

Once the practicalities of estate planning are addressed, you will likely want to get a will and power of attorney drafted or updated. A surprising number of entrepreneurs and family business owners don’t have either, and this creates the risk of leaving your business partners or family struggling to accomplish anything.

A power of attorney is used by your agent while you are living, and your will governs after your death. Most importantly, you want to get these documents drafted while you are well, and able to make decisions.

Clients will often call to request a power of attorney for a parent or spouse currently suffering from dementia, but their loved one no longer has the capacity to agree to give financial power of attorney to an agent. The same requirements exist for the execution of a will or any other document that directs your assets after your death.

Use additional documents to direct the transfer of business assets and power

 If you own a family business and have a will drafted, the ownership interests will pass according to your will. This division of assets may, in fact, be exactly what you want, but if you want the business to operate differently, you should look into other documentation. Documents such as a trust, a buy/sell agreement, or even the operating agreement can all help direct the division and distribution of the company’s assets.

If you own the business as a sole proprietor, you may need to specify that one of your children will be in charge after your death, or you may need to direct how the business must wind up.

If you’re one of several partners, you may want to allow your surviving partners to buy your share of the interest from your heirs, or you may want to direct your share to only one heir rather than divide it among all of them.

A trust may place your business outside the reach of your probated estate, and it may help provide the necessary liquidity to buy out a deceased partner’s share. Each family business is unique, and you will want to craft your estate planning documents to reflect that. You will also likely want to consult with a tax professional; federal estate taxes and Pennsylvania inheritance taxes may apply to your circumstances.

If you’re a family business owner, or about to invest in one, you are already familiar with hard work and it’s important to include estate planning in that work. Small business estate planning truly exemplifies “hope for the best and plan for the worst,” but getting it done will offer you and your loved ones significant peace of mind. With a plan in place, you can rest assured that your business and family can make it through anything.

 Christina Cozzetto is an associate attorney with Weber Kracht and Chellew Attorneys at Law located in Perkasie, PA. In addition to estate planning, her practice areas include criminal defense, family law, landlord/tenant, real estate, and civil and commercial litigation.