Business owners may wish to consider the merits of a succession strategy when creating an estate plan. Individuals concerned over how things will continue without them may include instructions with a will or trust that detail their business’s future ownership structure.
Business owners who wish to have their companies or sole proprietorships sold after passing away may need to leave clear directions stating that this is their intent. Drafting a will may allow an owner to instruct his or her heirs on how to sell the business, but wills must generally first go through the probate process. Setting up a trust, however, bypasses probate. Transferring a business and its assets may even begin while the trust’s creator is still alive.
Establishing a power of attorney
A business owner may wish to create a document that assigns power of attorney to a spouse, child or another reliable individual. As noted by Money magazine, the named individual will have the authority to take control of an owner’s business or financial matters if and when he or she can no longer make sound decisions. Failing to create a durable power of attorney, however, may result in a court-appointed guardian managing an incapacitated business owner’s affairs.
Training an heir to manage a business
Preparing an heir to take over a family-run enterprise could require some time. Training a successor generally includes providing hands-on instruction on how to manage the company’s operations. While it may make sense to assign an heir and successor with power of attorney, a preliminary objective may be for the individual to learn how to manage the business.
Many hard-working entrepreneurs did not build their businesses overnight. Handing a business over to a successor may also require substantial effort, much like starting a new enterprise. Delaying the business succession process, however, may leave surviving family members with an unwanted asset to deal with or sell. An estate plan that includes instructions on how to either continue a business or sell it properly may help avoid a legal dispute between heirs.