5 Estate Planning Tips For SMB Owners

What do Activities of Daily Living mean?

When the business is dependent on you as the owner, having an estate plan before you need one is a critical investment. If you suddenly pass away without an estate plan in place, your business may not be able to survive. After your death, your entire business and its assets may have to  go through a lengthy and expensive probate process, which could cause your family to suffer.

Estate planning involves creating a comprehensive legal plan for the management and distribution of your assets after your death. Your assets include all possessions of value, including property, bank accounts, insurance, etc. that are tied to your business. Your estate plan should also include financial instructions and medical directives in case you suddenly fall ill and become incapacitated.

To protect your business and your family, consider these tips to start your estate planning on the right path.

#1 Decide the future of your business

Before you start preparing your  estate planning documents, first imagine if there is a future for your business without you running it. Here are some questions  to help you in your decisions:

What is your Succession Plan?

How will the business continue without you? Do you have a Succession Plan? Many business owners will gesture towards their business and say “THIS is my succession plan.” However, this view may leave out important considerations for transfer of the business, your or your surviving spouse’s income needs, and other important topics.

A Succession Plan is a strategy for the successful transfer of business operations, management and ownership to partners, future generations, or successors. It is important to create a succession plan as part of your estate plan to ensure that whoever replaces you as a business owner is someone you fully trust. The succession plan should include details about not only how the property and financial assets of the business will be transferred to a new owner, but how your income needs will be met after the transfer. 

Would you rather sell the business instead?

Can you and your family live comfortably from the sale proceeds when you retire? If so, selling the business might be the better option. If you’re a sole proprietor, the process is relatively straight forward. But if you have a corporation, an LLC, or multiple business partners, you may need a Buy-Sell Agreement to facilitate the sale of your ownership. Generally, any current co-owners of the business will have a right of first refusal on purchasing any interest that has become available.

#2 Organize your business records

Make the hand-over process easy for your successors by having a secure and organized filing system for your business records. Here are just some of the more important records that you need to update and prepare for your estate plan:

  1. Your business plan
  2. State-filed documents, such as Articles of Organization or Incorporation
  3. Your Operating Agreement, if any
  4. Your Succession Plan, if any
  5. Financial records and statements
  6. Tax returns
  7. Insurance policies
  8. Business licenses

A note on Insurance Policies:

Apart from having a general life and disability insurance and naming your family as beneficiaries, you might consider purchasing a separate life and disability insurance policy for your business called a “key person” policy.

With a key person policy, you can name your business as the beneficiary. These policies provide payouts when a “key person” in the company passes away or experiences a disability. This money could be a lifeline for your small business. This money can also be used to fund the buy-out provision of a Buy-Sell Agreement, providing ready cash to the new owners to pay your surviving spouse or other heirs for the value of your business.

#3 Appoint an Agent in a Power of Attorney

It is in your best interest  as a business owner to appoint someone that you trust to be your agent under a power of attorney who can oversee your business and finances on your behalf.

A durable power of attorney is a legal tool that involves appointing a trusted individual to handle your finances if you can no longer make decisions due to health reasons such as being in a coma, developing dementia or becoming too ill to make decisions.

While an ordinary Power of Attorney expires if you become mentally incapacitated, a Durable Power of Attorney remains intact even if you become incapacitated.

In California, a Durable Power of Attorney can become active whenever you choose. You can make it take effect immediately or choose a specific date in the future.

What can an authorized agent do with a Durable Power of Attorney?

  • Buy and sell property
  • Manage bank accounts, bills, and investments
  • File tax returns
  • Apply for government benefits
  • Manage your business

#4 Create a Living Trust

As a business owner, you own many assets that are tied specifically to your business. Shouldn’t you be concerned about how your beneficiaries will manage your assets when you pass away?

Creating a Living Trust ensures that no matter what happens to you, the assets that keep your business running will be protected and will be managed by your Trustee – the person or entity you trust to manage your financial affairs.

Most people name themselves as the trustee during their lifetime. If you decide to do this, you can remain in control, even though your assets have been put into the trust. You can also name a successor trustee (a person, business, or institution) who will manage the trust’s assets if you ever become unable to manage your property, or when you die.

#5 Audit and review

To help you make smart decisions for your estate plan, you need to take a hard look at your business and personal situation by answering these questions:

  • If you die today, what is the current net worth of your personal and business assets? This can be done by totalling your current assets and liabilities and adding the value of any life insurance.
  • Is estate privacy important to you? Do you want your estate to be public record upon your death? If your estate goes through probate, anything filed with the Court will be a public record.
  • Do you have a list of reliable trustees? It is advisable to have two or more alternates in case your first choice is unwilling or unable to serve.
  • If your heirs or successors predecease you, who are your alternate beneficiaries?
  • How will your assets be distributed after your death, and when will these distributions take place?

What’s next?

Estate planning is complex, especially for entrepreneurs and owners of small and medium businesses. The right attorney can help you protect your business and your family after you’re gone, advise you on such issues as taxes, organize titles and trust documents, and facilitate the smooth transfer of assets and business operations to your beneficiaries.

Start taking action with your estate planning by booking your free consultation with our team at Crider Law Group.


750 F Street, Suite 2
Davis, CA 95616

333 University Ave, Suite 200
Sacramento, CA 95825

3017 Douglas Blvd, Ste 300
Roseville, CA 95616

288 Pearl Street
Monterey, CA 93940

San Antonio
18756 Stone Oak Pkwy, Ste 200
San Antonio, TX 78258

We operate on an appointment-only basis other than our Davis office.

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