I don’t know many people that are outright comfortable talking about their estate planning. For business owners, it can get even more complicated to navigate the money generated by a business with the estate planning needs of the owner. There are business assets, business accounts, and the ever-looming threat of bankruptcy, all of which are tied to the business owner.
Health issues are another concern. Business owners are often unable to afford good health insurance or long-term care protection. Business assets are at risk if you become unable to work.
Business owners can also have a much larger estate tax burden. Minimizing these taxes requires thoughtful planning and expert guidance.
If you’re a business owner, here are some estate planning documents that should be incorporated to protect you and your business:
1. Power of Attorney
For the more conventionally employed, all that’s usually needed is someone you can trust. For business owners, remember that the person with power of attorney will be making business decisions if you become incapable.
- Think about someone you can trust with the expertise to run your business on your behalf.
2. Will
Depending on your business and assets, it’s possible that your will could be considerably more complicated than that of others. Hire an attorney that works regularly with business owners.
- A good, strong will is the most important estate-planning tool, whether you’re a business owner or not.
3. SEP-IRA
A Simplified Employee Pension Individual Retirement Account (SEP–IRA) is more than a great retirement account option. It’s also a great tool for estate planning. It varies with each state, but most assets placed in these accounts are shielded from bankruptcy proceedings. Your business might fail, but your retirement will still be safe.
4. Transfer assets
Transfer your assets to your beneficiaries before your death. There are all types of tax implications, but it can be a useful strategy. It’s also possible, and often preferable, to sell some of your business assets to your beneficiaries for a small amount of money.
The courts can view it negatively if you attempt to transfer your assets during times of financial stress to protect yourself from creditors.
5. Long Term Care Insurance/Medicaid
As stated earlier, most small business owners do not have long term care insurance because it can be very expensive. If a small business owner ends up in a long-term care facility, not only may the business assets be at risk, but personal assets may be at risk as well. This type of care can be very expensive, oftentimes costing more than $8,000/month. Additionally, long-term care insurance may be cost prohibitive. Many entrepreneurs are unable to afford this type of insurance. The business owner may be able to qualify for Medicaid but should be aware of certain pitfalls that Medicaid can bring if he/she has insufficient assets to pay for long-term care out of pocket.
- Meet with your attorney and investigate your options. There are many options that can work.
- If your health is questionable or you’re getting older, look into other possibilities. But remember, laws can differ between states.
6. AARP
Consider joining the American Association of Retired Persons (AARP). It’s a powerful lobbying group that provides excellent retirement planning resources for a low annual membership fee.
7. Bank accounts
If your business has a lot of liquid assets, it can be a good idea to have multiple bank accounts with beneficiaries. This doesn’t give your beneficiaries any power or rights until after your death.
8. Trusts
Depending on the nature of your business and your assets, trusts can be an important estate-planning vehicle.
Some attorneys aren’t familiar with trusts, so it’s imperative to find an experienced one.
9. Life Insurance
Life insurance is often used as an estate-planning tool by the wealthy, since it’s commonly exempt from taxes. For the self-employed, life insurance policies can also be useful.
- Because whole-life insurance policies build cash value that is normally exempt from bankruptcy proceedings, it offers great protection from creditors.
Depending on the nature of the business, estate planning for the self-employed can be very similar to that of the more conventionally employed. It can also be much more involved. A good first step to protecting your business assets from creditors and excessive taxes is to call me to setup your consultation.
So, why not start planning for your business today? I’d be happy to help you.
