Nearly 10% of all Americans are business owners. If you’re one of them, there will inevitably come a time when you need to ask “what happens to this business when I’m gone?”
It’s a solemn question, but an important one. Luckily, the earlier you begin to ponder this question, the more time you and your loved ones will have to plan ahead.
What happens to your business after you die is in your hands as long as you plan accordingly.
What happens to your business after you die
If you want to keep the business in the family and have determined who would be the best fit to take over operations once you’re gone it’s important that you draft a plan in writing. Your plan for the company can be detailed neither an estate plan or a business succession plan.
In the document you must determine who you intent to transfer ownership to upon your death. As you draft your succession plan, it’s important to be realistic and ask yourself:
- Does this/these family member want to be a part of this business
- What is their vision for this enterprise?
You may decide that you want the business to be sold and the assets liquidated and distributed through your estate. But even this requires a contingency plan.
What if the business doesn’t sell? Who will run it then?
If your estate is subject to estate taxes, you need to have a plan set up for payment.
If you don’t plan ahead for these types of situations, it could lead to a) children/heirs/ family involved in the business receiving the business while uninvolved survivors gain no assets due to the liquidation of assets, or b) your business being sold anyway to help pay the taxes.
Creating a business succession plan will not only help create a smooth transition between owners, but can also ensure that your estate is distributed equally.
As you make decisions on what to do with your legacy after your death, it’s important to talk openly with your family and other beneficiaries about what your desires are.
Make sure that your desires are communicated effectively and that you also understand where your family is at. Having conversations early can help ensure that those heirs you plan to give your business to will be up to the task.
There are other things to consider when planning the legacy of your business after your death.
Say you’ve turned your business into a corporation. If you have any co-owners or if there are other people who are shareholders in your business, it’s important to talk with them about what business will look like going forward. You may decide your co-owner would be the best person to take over after you’re gone.
If you die without a business succession plan while being the primary shareholder of a business, your shares would go to your estate.
If you own an LLC (Limited Liability Company), your plan for the business should be specified under the operating agreement.
In addition to outlining your plan in your will, you may want to sit down with a business attorney to ensure that all of your business plans and assets are in order.