By Brittany Robinett
“What would you do to protect your loved ones?” For most people, the instinctual response is “anything.”
It should follow that those individuals would plan to protect their families in case something unfortunate, such as terminal illness or death, befell them. Statistics, however, speak to the contrary. A recent poll revealed that too few Americans – a maximum of 50% – have wills in place. Even fewer have arranged a living will or power of attorney to carry out their wishes in the event of incapacitation. Perhaps such inaction stems from the misconception that wills are for the wealthy or from fear of thinking about the unpredictable end. Regardless of social status, however, surprises are rarely welcomed by the survivors left to pick up the pieces.
Suppose I instead asked, “What would you do to protect your business?” It seems to escape many small business owners that their personal estate includes, in fact, their business, and it is in their best interest to establish a plan for it to continue in their absence. For both emotional and financial reasons, owners often resist relinquishing control; yet transfer of ownership, like death, is inevitable. Planning for the future not only eliminates stress on the bereaved, but it is also cost-effective.
Consider some consequences that could arise if your business’s affairs were not in order. If death or illness struck, could family members and co-owners tie up loose ends? Would someone be familiar with all associated accounts, know how to run the business, and manage it accordingly? How would the IRS value and tax your estate’s assets? Would the estate be left to probate and at what expense to your loved ones? When you weigh the risks, why wouldn’t you plan ahead?
Every business structure is unique, and the steps necessary to protect each differ. Additionally, the personal interests of owners influence those steps. Legal counsel can evaluate these concerns and advise the best course of action for a business to take. While plans may differ, there are certain safeguards that all small business owners should consider adopting: a living will, a power of attorney, and a trust.
1) A living will documents an individual’s healthcare wishes in the event of incapacitation. Living wills ensure that these wishes will be carried out, even if the person cannot express them.
2) Two types of power of attorney are recommended for business owners: a healthcare power of attorney and a durable financial power of attorney. A healthcare power of attorney is a document appointing an individual to make healthcare decisions fulfilling the wishes of the incapacitated. For various reasons, an owner might not want a person with healthcare power of attorney to have additional financial control. Since incapacitated persons cannot legally contract, a financial power of attorney appoints someone to handle your financial affairs and run the business within the scope of your instruction. Financial POAs may handle anything from paying bills, to handling paperwork, to managing the business in your absence.
3) A trust permits an owner to transfer property with others while retaining some management authority and ability to recover income and benefits. Since the trust owns your assets, there is no fear of them going into probate. Essentially, it allows a business to run in your absence while freeing it from any personal debts and obligations upon death.
In the words of Lieutenant General Claude Christianson, “Your biggest enemy is the unknown and assumptions.” Don’t be your own worst enemy. Plan for today so that the fruits of your labor can be enjoyed tomorrow. Those you leave behind will surely thank you for it.
Bexley Law Firm, LLC
About the Author: Brittany Robinett is a second year law student at the Georgia State University College of Law.