Estate planning when there is a business involved requires not only planning for personal assets but also considering long-term business requirements. If an individual has a sole proprietorship, the business estate planning is somewhat simplified as the business assets and personal assets are nearly the same, but more complex business dealings require additional considerations.
The first step in estate planning with a business is to consider the following documents. The last will and testament document will dictate whom the assets go to when the individual passes away. Without a will, the assets will enter the legal process to follow the inheritance laws of the local state, typically referred to as “intestacy.”
A living trust document, and in particular a revocable living trust, provides a trustee to manage both personal and business assets on an individual’s behalf if they pass away or become incapacitated. Living trusts can be difficult to administer and are not often recommended in Pennsylvania. A revocable trust allows the individual to make changes while still competent in creating a more flexible and fluid way to define the estate’s plan. A succession plan document outlines who or how the next person will take over the business will be picked.
A financial power of attorney document nominates an individual who will have the legal authority to make financial decisions when the business owner is incapacitated or has passed away. A medical power of attorney document nominates an individual to have the legal authority to make medical decisions on the business owner’s behalf. An advance health care directive document indicates the individual’s wishes for end-of-life medical treatment.
The type of documents specifically needed for estate planning with a business depends on the business structure. If the company is co-owned by a spouse, it may be easiest to name the spouse on the trust or will. Digital accounts and assets, such as e-mail, social media and digital documents should be planned for as well. Life insurance and disability insurance are important as these provide financial support to the individual or loved one. Key person insurance in the form of life or disability insurance can also provide the successors of the business financial support.
An attorney with experience in business estate planning can help navigate the necessary documents and decision-making points. Such an attorney may also guide the individual through the estate planning process to help ensure that all of the needed documents are accounted for.