Every state has its own rules about how assets are distributed after someone dies, and what happens when the person has not created a will. This is also known as dying “intestate.” If you need a reason to finally get your will done, or to take care of an outstanding legal matter, the article “Head off a small-business skirmish: Draw up your will or estate plan today” from KREM.com should get you started.
Here’s a tale from one law office that makes it all very clear.
A business owner died unexpectedly. He had never completed his divorce from his first wife after 20 years. What was he waiting for? It is hard to tell, since he had been in a relationship with another woman for 10 years and they had two children together. Because he never divorced his wife, she inherited his business.
No one likes to consider that they will die, or in this case, that it is really time to deal with their marital status. He probably thought he had plenty of time to plan. However, the result was not pretty. Here’s how you can avoid your own unintended consequence:
Preplan. A business owner needs to do a complete estate plan, so your property, family and business will be protected, if you should become incapacitated or die. You’ll need the following:
Disability insurance. This is a relatively affordable product that replaces up to 60% of your income, if injury or illness prevents you from working.
Life insurance. Consider the cost of providing food, shelter, education and care for your family. How would that be replaced, if you died tomorrow?
Another thing life insurance can do is keep a business alive after the owner dies. Proceeds can be earmarked in your estate plan to be used to meet business costs and spare your loved ones from selling the business for a low amount, because they need to raise funds fast.
Create a succession plan. How will your business go forward without you?
Have your documents prepared. Hire an elder law attorney who can protect your business and your family. Here’s what you’ll need:
A will and/or a trust. You need a will, especially if you have small children. This is because you’ll want to name guardians for them. A will does go through probate. However, this is only true if your assets are not placed in trusts. Your estate planning attorney will create a plan that fits your needs.
Health care directives. This gives a family member or friend the ability to make health care decisions, if you are unable.
Financial power of attorney. Someone you trust and who has strong business acumen will be able to make financial decisions on your behalf.
Beneficiary designations. This is where most people make big mistakes. Don’t leave your entire insurance policy to your ex because you forgot to update these. Whoever you name as a beneficiary on your designation form gets the asset, regardless of what your will says. This includes bank accounts, retirement accounts, etc.
Tell your family and/or friends about your plan and your wishes. Let more than one person know that these documents exist, who to contact in the event of an emergency and your wishes.
It’s not as much fun as a day of apple picking. However, planning now is the right thing to do. It is part of being a responsible adult, business owner and family member.
Reference: KREM.com (Sep. 18, 2018) “Head off a small-business skirmish: Draw up your will or estate plan today”