While various types of insurance can protect your business from lawsuits and other liabilities, perhaps the greatest liability of all—especially if you're the sole owner of your business—is what could happen to your company when you die or if you should become incapacitated by accident or illness.
To ensure your business—and the income it provides your family—is protected if you're no longer in the picture, you'll need to create and maintain an effective estate plan. Without a proper estate plan, your business could quickly fall apart, leaving your family at risk.
Relying on a will alone leaves your business vulnerable
When estate planning comes up, most people invariably think of a will. Though you can leave someone your business through your will, doing so leaves your company extremely vulnerable because, like all assets placed in a will, your company will have to go through the court process known as probate upon your death.
During probate, the court oversees your will's administration to ensure your assets (including your business) are distributed according to your wishes. But probate can take months (or even years) to complete and can be extremely costly, seriously disrupting your operation and its cash flow. What's more, probate is a public process, leaving your business affairs open to competitors' prying eyes.
Not to mention, a will only goes into effect upon your death, so it would do nothing to protect your business should you become incapacitated by illness or injury. So if you only have a will or no plan at all, in the event of your incapacity, your family would have to petition the court for guardianship in order to manage your business operation and other personal and financial affairs.
Like probate, the court process involved with guardianship can be long and costly. And in the end, whether it's a family member or professional agency, there's no guarantee that the individual the court ultimately names as guardian would be the best person to run your company.
A living trust offers optimal protection
Given the lack of protection offered by a will, one of the best ways to esnure your business's continued success when you die or should you become incapacitated is by placing your company in a living trust. A trust is not required to go through probate, and all assets placed within the trust are immediately transferred to the person, or persons, of your choice in the event of your death or incapacity.
Should something happen to you, having your business held in trust would allow for the smooth transition of control of your company, without the time and expense associated with probate or guardianship. Using a trust, you can choose the individual(s) you deem best suited to run your company in your absence, whether your absence is permanent (your death) or temporary (your incapacity).
Plus, trusts are not open to the public, so your company's internal affairs would remain private, and transfer of ownership would take place in your lawyer's office, not a courtroom.
While placing your business in a living trust is an effective way to protect your business upon your death or incapacity, it's just one of several planning tools available. And despite some common misconceptions, a trust does not provide asset protection against lawsuits or other creditor matters. For maximum protection, meet with your lawyer to discuss all of the planning vehicles available to ensure the company and wealth you've worked so hard to build will survive—and thrive—no matter what happens to you.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.