How to Protect Your Business After Your Death
We often have small business owners reach out to us to create their estate plan, and one question that is always on their mind is: how do I protect my business after my death? This is commonly the case for people who operate their small business as an LLC. Fortunately, there are a range of options to consider when deciding how to protect your business in your estate plan.
Revocable Trust & Assignment of Interest
The most common way we help clients protect their businesses after their death is by creating a revocable (living) trust for them. A revocable trust can hold both your real and personal property, including the interest that you own in your small business. We can move your LLC into the trust using an Assignment of Business Interest document. From there, your LLC will be owned by the trust, and the terms of your trust will govern how it is handled when you die. This provides a robust level of protection while offering great flexibility to determine what will happen to your business after your passing.
One option for determining what will happen to your business upon your death is by having a buy-sell agreement. A buy-sell agreement is essentially a buyout contract entered into between business partners to ensure that a deceased partner’s interest can be transferred to the surviving partners. Most commonly, these agreements are funded by life insurance policies on each of the partners with the other partner(s) as the beneficiaries. When one partner dies, the other partner will receive the death benefit from the life insurance policy and will use that money to buy the deceased partner’s interest in the business from their family or estate. This allows for continuity in the business while ensuring your family receives some sort of payment for your years of hard work growing your business.
Another option for small business owners with an LLC is to consider a beneficiary designation. This document simply names who will receive your interest in the LLC when you die, and it can be anyone from your individual family members or even your trust. This option differs from the ones above, however, in that it doesn’t transfer control or ownership of your LLC upon your death. Instead, it gives the beneficiaries the right to profits but it doesn’t give them voting rights. It also requires an operating agreement that permits you to appoint beneficiaries in the first place.
As you can see, there are a number of ways business owners can plan to protect their business after death. Contact us today if you are curious how we can help you do the same!