Small business owners are constantly brainstorming new business plans, new ways to innovate or new ways to make their business even more attractive to the public. Along the way, though, too many overlook one essential aspect of business planning, which is establishing a clear direction for their business after their death, and ensuring that the proper written documents are in place to facilitate that plan. Without a proper plan, the business you’ve spent your lifetime growing and developing may unravel when you are no longer around to guide it.
Establishing the plan for your business after your death involves making several essential determinations. First, you must decide who will become the owner of the business. Transferring ownership of your business can be accomplished through your estate planning documents. You may hand down ownership of your business, whether it is a sole proprietorship or a corporation, either through your will or your living trust. If you do not wish to hand down your business, you may also direct the personal representative of your estate (if you use a will) or your successor trustee (if you use a living trust) to sell or close the business. The proceeds of the business’s sale or closure would then distribute according to the terms of your will or trust.
In the absence of a clear plan, the business may become the subject of complex and prolonged court battles. A New York Times article recently related the story of Bari Jay, a clothing business. When owner Bruce Cohen suffered a massive stroke (and later died as a result,) he had only minimal planning in place for his business. A court battle between his daughters, to whom he intended to leave the business, and their stepmother ensured and the business fell “into the red.” In some cases, a careful and detailed succession plan might avoid such legal battles.