Nine Things All Business Owners Must Know About Estate Planning

It’s never too soon to begin estate planning, especially if you are a small business owner. It’s likely that a great deal of your wealth and that of your family is tied up in your business. Should you die or become incapacitated without a plan for your business in place, your family may suffer significant financial loss and legal burdens.

When you die or retire, do you want to terminate your business, pass it down to the next generation or sell it? Are you a sole owner or a partner or shareholder in your business? The answers to these questions will make a great deal of difference in your investment in the business as time goes by and if you train people to take your place. Whether you want to ensure your business keeps running smoothly or just provide properly for your heirs, you need a plan. Of course, you will want to discuss this with your California estate planning attorney, but here are some basic guidelines to get you thinking.

1. At the Very Least, Make a Will

Everyone is aware they should make a will if they expect their estate to be distributed according to their wishes after they die. For business owners who have partners and employees who depend on them, it is even more important. Still, some of us put it off. If you have not yet made a will, it’s time. Give some thought about whom you want to appoint as your executor to manage and disburse your assets.

2. Consider Creating One or More Trusts

There are several types of trusts, but the advantage of a trust over a will is that any property owned by the trust will not go through probate. This has several advantages which may include

  • Reduced taxes
  • Reduced legal fees
  • Faster property transfer to heirs
  • Privacy

Organize Your Important Documents and Records

Make sure your important documents are organized and accessible to your executor or the person you designate to handle your business matters in your will. These documents will include your financial statements, leases, client contracts, business plan, insurance policies and any other critical documents. Include a list of these documents plus email accounts, social media accounts, client lists, vendor lists and other information critical to your business. Don’t forget any necessary passwords. If you do not do this and are the sole proprietor of your business, your heirs may be locked away from some of your vital business information.

4. Put a Succession Plan into Place

If your business will not be terminated upon your death, you need a succession plan. We addressed succession plans in more depth in our September article, All Small Business Owners Need a Succession Plan; Most Don’t Have One.

5. Buy-Sell Agreement Are a Must for Multi-Owner Businesses

If you have partners or are a shareholder in a small business, you will want to set up a buy-sell agreement that outlines what should happen to your portion of the business upon your death. Do you want your business partners to buy out your portion of the business? Do you want your heirs to sell your share of the business? A buy-sell agreement sets out a sales price, so if you die, your heirs will not have the stress of hiring expensive experts to determine if they are getting a fair price for your share of the business.

6. Life Insurance Can Provide Funds for Buy-Out

Business partners may want to consider life insurance policies that name each other as beneficiaries to provide funds for buying out the shares of a partner who dies. In addition to enabling buy-out of the business, insurance benefits are tax-free.

7. Protect Your Estate from Liability

Even if your business will be terminated upon your death, it may be prudent for your heirs to continue liability insurance for a time. You should also consult with your estate planning attorney about probate or trust administration processes that limit the length of time your estate may be legally liable for your business after your death.

8. Minimize Taxes

Though there is no California estate or inheritance tax, there is a federal estate tax for estates valued at or above $11.18 million. (If both a husband and wife have died, the estate can be valued up to $22.46 million before it is taxed.) If the value of your business may push your estate into the taxable category, you may want to take steps to reduce its value before your death. For example, you could outline a business plan and a will that limit the transferability of your business interests upon your death. Should taxes be unavoidable, the IRS offers some breaks that can reduce the money your estate must pay. (See 26 U.S. Code § 303 and 26 CFR 20.6166A-1.) Holding business shares in certain trusts may also reduce taxes. Be sure to discuss this with your estate planning attorney.

9. Consider Granting Power of Attorney

Consider granting power of attorney to perform your business functions to a trusted person in the event you become incapacitated. If you do not do so, the court may appoint a guardian to manage your company and its assets.


We have barely touched on the importance of estate planning for business owners here. If you own all or part of a business, protect it and your heirs by consulting an experienced California estate planning attorney as soon as you set up your business. Expect the unexpected.

Recent Posts

What Our Clients Say

Contact Us