Self-employment promises the freedom to pursue your dreams, make your own decisions and create your own hours.
The lure of these promises along with current economic conditions are expected to spur entrepreneurship rates in coming years. Currently 15 million Americans are self-employed. A recent report by Market Research Provider Dynata for FreshBooks, a cloud-based accounting software firm, found that 24 million Americans want to become their own boss by 2021.
The timing is right, according to a recent article in Forbes Magazine. The magazine reported that venture capital investment in startups last year surged to its highest level ever — $148 billion. Further, recent economic expansion, steady job growth, adjusted business tax codes, and a booming stock market have created the most fertile soil for entrepreneurial companies to grow in years.
However, entrepreneurship also results in increased responsibility. Family members and employees may rely on income from the business and clients may count on your services. With all of these people depending on your business, creating an estate plan is an essential part of your overall business plan.
Sadly, many business owners do not make a plan. A 2017 Caring.com survey found that 58 percent of U.S. adults do not have a will or a living trust, which can serve as a will substitute.
Wills are important for all Americans but even more so for business owners. A business is often a person’s single largest asset. If a business owner dies intestate, or without a will, the probate courts will decide who inherits the business according to the state’s intestate laws.
The probate process may take a year or more, depending on the complexity of the assets and any potential family infighting. Payroll and bills will remain unpaid until the court determines an executor. The probate process may halt business transactions including buying or selling assets or property and may result in lost revenue, clients, and income.
The laws of the state also might not align with the best interests of the business. According to Georgia intestate laws, a spouse would receive at least one-third of the business and the children would split the remainder equally. But what if one child has devoted their life to the business and the other has no interest in the business? Or what if a spouse has to share a business with children from a previous marriage who do not believe in the same vision? Leaving these questions unanswered could ruin your business, greatly reducing any assets you planned to leave your family.
A basic will sets out who you are, who will be in charge of settling your estate when you pass away, and how you want your assets distributed. In the above examples, your will could designate one child or spouse as the heir to the business and the other heir as the beneficiary of your personal assets.
Alternately, you could put your business and other assets into a revocable living trust. A revocable living trust is a private, flexible estate planning tool that holds and distributes your assets with little or no court intervention according to a set of terms outlined in the trust. Because there is no need for probate of assets in a living trust, whoever you designate as your successor could take over the business right away and immediately begin paying bills and payroll, making business transactions, and drawing an income.
A trusted estate planning attorney can help you create these and other documents that can ensure that your business will not die when you do. With the right documents in place you can protect your family, your business, and your clientele.
Richard Barid and Michael Smith are co-founders of Savannah-based law firm Smith Barid LLC, which focuses on estate planning, special needs planning and elder law planning. They can be reached at 912-352-3999, firstname.lastname@example.org or email@example.com.