Owning your own business is a rewarding endeavour that takes immense effort, determination, and organisation so planning what happens to your business after your death is an essential factor in running your enterprise. The consequences of your passing may seem scary, far off, or perhaps you believe that misfortune won’t happen to you but don’t underestimate the essential importance of estate planning. In today’s blog, we discuss the importance of estate planning in business and how it will help you, your family, and your business. Bear in mind this blog is not legal advice and if you seek a professional consultation contact the asset protection, taxes, and planning team from Taggart & Partners, for expert advice.
The fundamental importance of estate planning
Estate planning is a specialised field that takes time, planning, and care to avoid vague, complex, and chaotic outcomes. Business owners who prepare for their passing or incapacitation will prevent long drawn out and expensive legal battles. Getting started by drafting a will is an important first step in any estate plan with the process differing depending on the type of business ownership.
Types of business ownership
The organisational structure of your business impacts how its assets and interests will be divided. Understanding the differences is a significant component in the importance of estate planning.
Sole traders
If you own 100% of a business, then planning your estate is a straightforward process. Make a will that determines what happens to your debts, who receives the assets, and, if necessary, how to sell the business.
Partnerships
Craft an agreement, also known as a ‘buy-sell’ agreement, that explicitly determines which partners receive what portion of the businesses equity and what to do in the event of a partner’s passing. In the case where the business is sold, a will can determine the beneficiaries of any proceeds.
Companies and trusts
Create a shareholder’s agreement to establish what happens to the ownership of the company upon your death or disablement. Shares may be passed to beneficiaries through a will but property, assets, or anything else owned by the company cannot. This also covers what to do if your directors or shareholders wish to buy your share, voting rights, and dividends.
Roles and responsibilities
Determining who takes control of your business and who manages your business are two considerations to debate when thinking about the importance of estate planning. If this part goes wrong, it could potentially ruin your business. Make sure your estate plan and will establish:
- beneficiaries
- an executor
- an appointor (of trusts)
- a change of trustee
- a trustee of trusts set up in a will
The appointor of the trust functions as a supervisor or guardian who has the right to get rid of and replace a trustee. The executor is a role of vital importance and responsibility so assigning the correct person to this post should be done with consideration and care.
Consider your family members
The key importance of estate planning is recognising that family members have different desires and needs. Take the time to make an equitable decision now so that the future will be fair for your surviving family members.
Factor in your super
Superannuation is an asset and must be included in a discussion of the importance of estate planning. Left undefined, the super fund determines who receives your super upon your death so to avoid this outcome create a binding nomination with your provider. It allows you to nominate who gets your super after your passing. Family members, dependents, or your estate are all options so you should seek advice to determine which is best for you.
Ready to plan ahead?
The critical importance of estate planning for any business owner should be a part of their business plan from the beginning. The Taggart & Partners small business accountant team are excellent at helping business owners protect their assets and can provide a well thought out estate plan tailored to your unique circumstances. If you would like to inquire further, contact us online or call us on (07) 3391 1188 today.