For most small business owners, estate planning sits at the very bottom of the to-do list. Between client work, payroll, and planning next quarter’s goals, the idea of drafting legal documents for a “what if” scenario feels far away.
But if you own a business – even a small, one-person practice – your estate plan isn’t just about who inherits your house or savings. It’s about protecting the value of what you’ve built, ensuring your clients and family aren’t left scrambling, and keeping your wishes clear when you can’t speak for yourself.
When clients come to me to outline their net worth, and they have a business, more often than not that business receives a valuation of $0. That’s because either there are no assets to pass to anyone else (outside of the owner) or because there’s no indication of the value of the company.
To change that, you need to put a plan in place, which is part of the estate plan. A strong plan isn’t complicated. But it does require you to think through how your personal and business lives are tied together and what happens if you’re not here to manage that connection.
Start With the Basics
At its simplest, your will tells the world what should happen to your assets. More importantly, it also tells a probate court your intentions. Without those intentions stated, then the court will use a predetermined formula based on the state’s law to distribute assets and that includes your business.
For business owners, the “assets” piece is a more complicated than most, because it includes your ownership shares. Having a clear determination of who should manage your business in your absence is important. It will also give you a chance to incorporate a health care proxy and power of attorney, so there are also clear directions on who should take the helm even if a short-term medical emergency occurs.
Make sure you review the beneficiary designations on your retirement accounts and life insurance policies. These designations override your will so even if your will says one thing, the beneficiary listed on your 401(k) form takes priority. A quick annual review helps ensure your documents are aligned.
Create a Succession Plan for Your Business
If you couldn’t work tomorrow, who steps in? For many solo or small practice owners, there isn’t an easy answer. Clients might not know where to turn. Family members might not have the expertise to manage operations, have the information to access business accounts, nor have the interest to keep it running.
This could destroy the value of the company in matter of weeks and years, crumbling the goodwill and revenue source you built.
A simple business continuity or succession plan fills this gap. It can outline who should contact clients, where critical passwords and financial records are stored, and how the business should be valued or transitioned.
Even a one-page document can save significant stress and confusion later on, in case your family must scramble to manage the business in your absence.
If you have a trusted colleague or operations manager, consider giving them limited power of attorney related to the business, so someone can legally access funds or manage key accounts if needed.
Establish a Buy-Sell Agreement if You Have Partners
If your business has more than one owner, a buy-sell agreement is essential. This agreement spells out what happens if one partner wants to leave, becomes disabled, or passes away. Without it, your share could end up in the hands of heirs who may not be ready or interested in managing the company.
This also helps out you and your partners, since they would have the plan in place as well. It ensures that a family member isn’t placed into a leadership role, whether they have the capability or not, which could hinder how the business operates moving forward. The buy-sell agreement prevents that.
The agreement should define how the business is valued and how the purchase is financed, often through life or disability insurance. The goal is to provide clarity and fairness to all partners and their families, avoiding painful disputes during already difficult circumstances.
Use Trusts and Other Tools to Protect Assets
As your business grows, you might benefit from adding more structure to your estate plan. Trusts can be a useful way to separate personal and business assets, protect your family from estate taxes, or simplify the transfer of ownership.
For instance, placing business interests in a trust can help ensure continuity and control, while still directing income or ownership benefits to your heirs. A trust can also prevent the business from getting caught up in a lengthy probate process, helping operations continue smoothly.
Not every small business needs this level of planning, but an estate attorney who understands both personal and business finances can help determine if it makes sense for your situation.
Update as Life and Business Evolve
Not having an estate plan at all is a business owner’s number one mistake. A close second? Not updating the plan as time moves along. Your business changes. You might take on a partner, expand services, or shift from a sole proprietorship to an LLC. Personally, you may marry, divorce, or welcome new family members.
Each personal and career milestones can change how your estate plan should look. A document drafted five or ten years ago may no longer reflect your wishes. Worse, it may conflict with other updated documents.
That way you know that the years you spent building something meaningful won’t go to waste the moment you leave the picture behind.
