When you own a family business, estate planning and succession planning can be complex, and you must weigh many considerations in creating the right plans for your situation. The experienced estate planning lawyers at Estate Planning & Elder Care Firm of Michigan are committed to helping owners of family businesses in Livingston County and Macomb County with these important tasks. We’re here to help you draft the best succession and estate plans that meet your unique needs.
As a business owner, your company is probably one of your most significant assets, and being certain of its continued success is essential, even when you are no longer running it yourself. Whether you're planning for retirement or considering the future of your business after your passing, it is vital to consider your wishes for your business in your estate plan, as well as to create a succession plan for the company.
Why You Need an Estate Plan When You Own a Family Business in Micihgan
An estate plan comprises comprehensive legal documents that designate how your assets will be managed and distributed upon your death or incapacity. In these documents, you can appoint someone to take over the operation of your family business if you become disabled or otherwise unable to make business operations decisions.
In your estate plan, you can also appoint a personal representative or trustee to distribute your business and other assets according to your wishes when you die. If you do not have an estate plan, your assets will be distributed according to Michigan's intestate succession laws, which may not be how you want to leave your business and other assets to your heirs.
Common Problems When a Family Business Owner Doesn’t Have an Estate Plan
A number of problems can arise when the owner of a family business owner doesn’t have a solid estate plan. Examples include:
- Unexpected tax liability. Without proper estate planning, your heirs may face unexpected tax liabilities, which will reduce the value of their inheritance.
- Increased probate costs. Without an estate plan in place, your estate may be subject to probate. The probate process can be time-consuming and expensive, resulting in higher legal and administrative costs.
- Mismanagement of the family business. If you do not provide clear guidance on how your business should be managed or transitioned, there is a risk that those who take charge of it will mismanage operations or cause the company to lose value.
- Disputes between family members. In the absence of an estate plan, family members may disagree over the distribution of assets. They may raise disputes and legal battles during the probate process that make the administration of your estate more costly and can permanently strain family relationships.
- Delays in transferring assets and closing the estate. Without clear instructions in an estate plan, the probate process may be prolonged. There could be significant delays in transferring assets to your beneficiaries and closing the estate.
What Should Be Included in Your Estate Plan When You Own a Family Business
When creating an estate plan as a family business owner, you should include several important elements to protect your business and your loved ones and ensure that your wishes are fulfilled. Key elements of an estate plan may include:
- Durable power of attorney. A durable power of attorney is a legal document that allows the person you designate to make financial and legal decisions for your business and your personal life on your behalf if you become incapacitated.
- Trust. You may decide to establish a living trust to hold and manage your assets, including your business interests, during your life and after your death. Creating a trust and appointing a person you trust to be the trustee can help ensure a smooth transition of business ownership and avoid the expense of probating your estate.
- Will. Even if you decide your estate plan should include a trust, you still need a will. If you do not put all of your assets in the trust or do not have a trust, your will outlines your wishes for the distribution of your assets, including your business, upon your death.
- Life insurance. You may want to purchase life insurance to provide financial support for your family and cover any business expenses so your company can run smoothly while it is being transferred or sold according to your wishes.
Importance of Having a Succession Plan If You Own a Family Business
It’s just as important for owners of family business owners to have a succession plan as it is to have an estate plan. A succession plan is not the same as an estate plan, but having one can help outline what you want to happen to your business once you are no longer running it.
A succession plan is a strategy that will allow your family business to thrive as ownership transitions to family members, business partners, or new owners. It outlines how your business will be managed and transitioned in the event of your retirement, incapacity, or death. The wishes you specify in your succession plan can be incorporated into your trust or will.
If you want your business to continue when you stop being in charge, succession planning involves deciding who you would like to take over your position in your family business and how ownership will transfer to your heirs. You also need to have a plan in place if you decide to sell your business when you retire or can no longer run it.
What if you have business partners? In that case, it's a good idea to incorporate a buy-sell agreement into your business's succession plan. In this type of document, the co-owners of a business clarify the terms of how they have agreed that each partner’s interests may be bought and sold in the event of their death, incapacity, or retirement.
Risks of Failing to Have a Succession Plan
If you don’t have a succession plan in place for your family business, this can lead to various drawbacks, including:
- Unclear direction for your business. Without a clear succession plan, there may be uncertainty about who will take over the leadership of your business or whether it should be sold, leading to confusion and potential disruption in operations.
- Power struggles among managers. Without a designated successor, internal power struggles may arise among managers or family members, creating tension and instability within the company.
- Family members' disagreements. In family-owned businesses, disagreements over succession can strain relationships between loved ones and lead to conflict, which can potentially damage the business and family relationships.
- Loss of your company's value. The lack of a succession plan can decrease your business's value, as potential buyers or investors may perceive it as a higher risk without a clear plan for continuity.
Contact Our Michigan Estate Planning Attorney for a Consult
If you own a family business, it’s important to protect the hard work you invested in building it. That’s why it’s important to have both a succession plan and an estate plan in place. Taking steps now to create these critical legal documents will help ensure that your wishes regarding your family business are honored when you retire, pass away, or otherwise become unable to run your business. Our experienced Livingston County and Macomb County estate planning lawyers understand the unique challenges you face as a Michigan business owner. We’re ready to help you create a comprehensive plan to protect your business and your loved ones.
To request a consultation with our Micigan estate planning attorney, click the button above. For immediate assistance, give our office a call at 517-548-7400 now!
