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Estate Planning Tips For Business Owners

Estate Planning Tips For Business Owners

Estate planning, Wills, and Trusts are very important to manage one’s assets and wealth, especially for business owners. In Missouri, where the local business environment thrives on its diverse array of small and medium-sized enterprises, planning how to pass on these businesses is vital. At Piatchek Law Firm, LLC, we are dedicated to assisting Missouri’s business owners with their estate planning needs.


The Importance of Estate Planning for Business Owners

Estate planning is a comprehensive process of organizing and managing your assets to ensure their smooth distribution upon your passing, including smooth transition and management upon loss of capacity. It involves creating legal documents, such as Wills, Trusts, Powers of Attorney, which help stipulate how your estate should be handled and who should inherit your possessions.

For business owners, especially in Missouri, estate planning takes on additional layers of importance. When a business is part of your estate, it’s not just personal assets–like homes and personal belongings–that need to be considered. A company often represents a significant portion of a person’s wealth and is an ongoing concern that may affect a lot of people – employees, customers, vendors, and the market.


Unique Aspects for Business Owners

There are unique aspects of estate planning for business owners compared to individuals.

  • Succession Planning involves determining who will take over the business after the owner’s passing, incapacity, or retirement. Succession planning ensures business continuity and may include family members, business partners, key employees, or third-party buyers.
  • Business Structure: Missouri recognizes various business structures, including sole proprietorships, partnerships, corporations, or LLCs (Limited Liability Companies). Each carries different implications for estate planning. For instance, in a sole proprietorship, the proprietor’s personal and business assets are legally the same, which could affect personal assets in case of business liabilities.
  • State Intestacy Laws: In Missouri, if a business owner passes away without a will, the state’s intestacy laws kick in. These laws state who a person’s heirs are, when the deceased person did not make a Will or state otherwise. These heirs may not align with the owner’s wishes regarding business asset distribution, almost always making a well-drafted will or trust necessary.
  • Tax Implications: The transfer of business ownership may trigger significant taxes on the business value, which can affect business continuity and inherited wealth. Therefore, tax planning should be an integral part of estate planning for business owners.


Understanding the Impact of Your Business on Your Estate

Your business structure can significantly influence your estate planning, with different business types carrying distinct implications for personal assets and liability.

  • Sole Proprietorships: A sole proprietorship doesn’t separate the owner’s personal and business assets in Missouri. The owner’s assets can be at risk in business debts or other legal issues. Therefore, estate planning for a sole proprietor may often include strategies to protect personal assets from potential business liabilities.
  • Partnerships: In a partnership, each partner shares responsibility for business debts and liabilities. If a partner passes away, their estate may be liable for these obligations. Proper estate planning can help specify how such situations should be handled, and protect partners and their families, and the continuity of the business.
  • Corporations: Unlike sole proprietorships and partnerships, corporations separate personal and business assets. Shareholders in a corporation can pass on their shares as part of their private estate, separate from the business’s debts or liabilities.
  • LLCs (Limited Liability Companies): Similar to corporations, an LLC separates personal and business assets, protecting the owner’s assets from business liabilities. However, LLCs have more flexibility in how they can be passed on, how they are taxed, and their handling in estate planning can vary based on the terms of the operating agreement.

A critical goal of estate planning for business owners is to separate and protect personal assets from business liabilities. The law provides several mechanisms to achieve this in Missouri, such as forming a corporation or an LLC or using trusts or insurance policies.


Essential Estate Planning Steps for Business Owners

In Missouri, business owners should consider several key steps as part of their estate planning to ensure their business interests are effectively managed and transferred:


Drafting Basic Estate Planning Documents: Wills, Trusts, Powers of Attorney

  • Wills and trusts are legal documents dictating how your assets, including your business interests, are distributed upon passing.
  • In Missouri, both wills and trusts are recognized means of transferring property after death. In these documents, it’s essential to specify how your business should be handled—whether it should be sold, dissolved, or continue operations.
  • Wills do not avoid Probate Court on their own, whereas a properly done Revocable or Irrevocable Trust should avoid Probate.
  • Powers of Attorney can bestow authority on the persons you need to make decisions for you if you became incapacitated, whether business or personal decisions.


Business Succession Planning

  • A succession plan outlines who will take over your business upon your demise. This plan is crucial to ensure business continuity.
  • Succession planning includes management succession (who will run the business), ownership succession (who will own the company), and liquidity options (how the successor will pay for the industry, if necessary).
  • In Missouri, you have many options for succession plans, including family succession, employee buyouts, partner buyouts, key employee buy-ins, or third-party sales.
  • Comprehensive succession planning would include the concepts of what happens upon death, disability, or retirement.


Buy-Sell Agreement

  • A buy-sell agreement is a contract between business owners that specifies how a partner’s share of a business may be reassigned if that partner dies or otherwise leaves the company.
  • Well-funded buy-sell agreements ensure business continuity and a smooth transition during an owner’s death.
  • In Missouri, buy-sell agreements are acknowledged and can be funded by life insurance, personal funds, or loans, or other mechanisms, including paying over time.


Keeping Personal and Business Assets Separate

  • Protecting personal assets from business liabilities is crucial. If your business was to get sued, or had a judgment against it, you would not want this to affect your home, cars, retirement accounts, your children’s college funds, etc. Separation is key.
  • This separation can often be accomplished through various legal structures, including corporations, LLCs, Trusts, various types of accounts, etc.  
  • Insurance policies can also be utilized to safeguard personal assets further.


Planning for Business Liquidation

If continuing the business isn’t desired or feasible, strategizing for business liquidation is essential to estate planning.

Missouri law provides guidelines for dissolving a business and distributing its assets, which can be specified in your will or trust.

Navigating the estate planning process as a business owner in Missouri can be complex. However, with the right advice and proper planning, you can ensure your business is handled correctly after death. Consulting with a law firm like Piatchek Law Firm, LLC can provide the expert guidance necessary to navigate this process.


Make Use of Legal and Financial Tools for Estate Planning

Estate planning for Missouri business owners does not have to be a complex process, and luckily, there are several legal and financial tools that can help.

  • In Missouri, Durable Power of Attorney documents can be used to state who can make legal decisions if you were unable to do so, or simply wanted someone else to be able to do so. This document can ensure that the person you trust most can make critical business decisions when you cannot.
  • Advance Medical Directive: This is called a Health Care Directive in Missouri. This document can provide peace of mind for business owners, knowing that their personal health decisions won’t become a burden for their families or business partners.
  • Life Insurance: In Missouri, business owners can use life insurance as a financial tool to ensure a smooth transition for their business after their death. Life insurance proceeds are generally income tax-free and can be structured to avoid estate tax, making them an efficient tool for wealth transfer.

These tools are essential elements of estate planning for business owners in Missouri, helping to ensure that both personal and business affairs are well-managed during any unforeseen circumstances.


Estate Planning for Business Owners

Estate planning for business owners can sometimes be complex, but certainly does not have to be. We find that many business owners expect the process be time consuming and complicated, and therefore, the business owner puts off dealing with it. It does not have to be complicated… let us help you make it easier!

With Piatchek Law Firm, LLC, you can be confident in your estate planning strategy. If you are a business owner in Missouri, take the crucial step to secure your legacy today. With careful planning, the business you worked hard to build can remain a source of pride for future generations.

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