As individuals, we all recognize that we need to make plans to transfer our assets at the end of life, but as business owners, sometimes that task falls to the wayside. Business owners and entrepreneurs need estate plans to allocate their business entities, just as individuals do personally.
Without proper planning, a lifetime of growing an organization can slip through the hands of family members who were unprepared to take on the responsibility of your business. This is why, for North Carolina residents, there are specific things you should do now to protect the livelihood of your business and to provide for your family's success.
Why Business Estate Planning Is Important
Your business has a variety of assets used to run your company on a day-to-day basis. Things from everyday cash flow and equipment to stock, real estate, or investments must be accounted for if you are no longer around to manage your business. In addition to assets, you may have debts to reconcile and employee obligations to uphold, such as retirement funds or severance packages.
Consider the possibility that you may experience an unexpected illness or accident which leaves your business and assets in limbo, with no sound legal documentation as to what should happen to your business after your death. If this occurs, there may be no one who is legally authorized to make important business decisions, and your business could fail.
Under North Carolina Law, your business could be held in probate court, tying up your assets while your estate is settled. This process can be long, costly, and stressful for family members waiting for conclusions. However, this can all be avoided if you leave behind proper plans and instructions.
A Checklist Of What You'll Need To Discuss With Your Lawyer
North Carolina legislature has established specific laws and procedures surrounding the disposition of your business. You'll need to discuss your options and the legalities surrounding them with your estate planning attorney.
For instance, you'll need to compile and complete all of the following tasks or documents.
A Power Of Attorney
In the same respect that you might personally have a health care power of attorney, your business needs a financial power of attorney. Under the North Carolina Uniform Power of Attorney Act (Chapter 32C), you can designate whomever you want as your agent to act on your behalf, as long as you have the appropriate documents and signatures in place. This document will authorize a specific person to make decisions on your behalf, outline the powers they can exercise, and under what circumstances those powers transfer to that designated person.
In short, a financial power of attorney is meant to make sure there will be no gap in your business operations if something unexpected happens to you.
A Will
Your will carefully lays out how all of your estate assets will be distributed. All individuals need to have a will in place, and it’s especially important for business owners.
An essential inclusion in your will is an explanation of how you would like your business and its assets to be transferred after your death. In the absence of a will, your business assets will be distributed according to North Carolina state law, dividing your estate equally amongst your spouse and children (read more about dying intestate in North Carolina).
In many cases, dying without a will can cause the division of your estate and your business to be contested by your heirs, prolonging and complicating the process.
It is important to note that you'll need some additional documents if you have partners in your business. You can also set up a buy-sell agreement between partners/owners, which would give your partners the ability to buy out your interest in the company in a predetermined structure when you pass away.
A Living Trust
Trusts are often created to hold or manage assets for a beneficiary which are administered later by a trustee. This allows assets to be passed to selected beneficiaries without the need for the process to go into probate.
Another benefit of setting up a trust is the speed at which assets can be moved. Trusts allow for assets to transfer quite quickly and can often provide tax advantages, as well.
Under North Carolina law, Chapter 36C (trusts), and § 36C-6-(601-607) (revocable trusts), your selected successor will be able to take ownership of your business and the business's assets much faster, and you can be comfortable knowing that your business operations will go on without interruption.
When Should You Make A Plan?
As your business grows, tax laws change, or your season of life progresses, it can be time to create or update your estate plan. There are several instances where you might want to reevaluate your current plan, as well. Perhaps you've been married or divorced, or your grandchildren have been born.
Some common triggers we often see for creating or updating your estate plan are:
- A change in tax laws
- Your relationships have changed: married, widowed, divorced, had children or grandchildren
- Your business has grown in size or value
- It's been more than three years since you've evaluated your estate plan
- Your plans for the future of the business have changed
- Your business has gained or lost partners
Our team can help you put together a comprehensive estate plan. With good estate planning, both your family and your business will be prepared for whatever happens in the future.
Our Wilmington Estate Planning Team Can Help
Whether you’re in the process of creating your estate plan from scratch or updating an existing one, David Anderson and his team of estate planning professionals can help. Call us today or contact us online to schedule a consultation today!