Non-traditional families have a unique set of challenges when it comes to estate planning. Since single parents, blended families, unmarried partners, and other non-traditional families do not have many of the automatic protections that the law provides married couples, these families must anticipate and plan for certain end-of-life issues with special care. These issues can become even more complex when one or more members of the family owns a business.
Here are five not-too-obvious issues every non-traditional, business-owning family needs to think about when estate planning.
1. Set goals.
When estate planning, the first step should be determining your intentions and goals, and then building your estate plan around those goals. For example, is your goal to leave your business interest to your unmarried life partner? Do you want your grandchild, but not your child, to receive your stock shares? If your goals involve leaving any part of your business to someone who does not have automatic inheritance rights, you have to make specific arrangements.
2. Specify stepchildren in legal documents.
Your stepchildren may feel every bit as much yours as your biological children, but step-kids do not have the same rights to your property when comes to estate law. If you want to leave any part of your business to your stepchildren, you must explicitly name them in your will or trust as a beneficiary (as opposed to saying to “my children’) to ensure that they receive the share you intend for them.
3. Create a buy-sell agreement.
A buy-sell agreement is a contract between co-owners of a business used to reallocate shares of a business when a co-owner dies or leaves the company. It can spell out who has a right of first refusal and establish a fair price. If you intend to bequeath your business shares to a family member who is not a legal heir, having such an agreement in place can help minimize disputes [https://bedtimesmagazine.com/2014/07/family-feud-how-a-buy-sell-agreement-can-save-your-family-business/].
4. Work on a succession plan early.
If you’ve got a family-owned business, there’s only a 30% chance that it will survive to the second generation [http://www.marinercapitaladvisors.com/resources/publications/family-businesses-and-succession-planning-challenges.html/]. This sobering statistic underscores the importance of creating a solid succession strategy. You should start preparing your intended heir as soon as possible, so that your heir will be ready to take over management of the business when the time comes. Moreover, if your chosen successor is a family member who is not a direct descendant, it’s a good idea to prepare other family members for your choice to lessen possible conflict after your passing.
5. Use a trust to transfer ownership of your business.
If you want to leave little to chance, transfer ownership of your business into a trust while you’re still alive, then name your chosen business successor as the successor trustee. A carefully structured living trust allows you to run the business as long as you have the capacity to do so, and permits your family member, blood-related or not, to take over when you cannot.
Our team is eager to help non-traditional families learn more about and draft solid estate plans. Please call 501-221-7776 for a consultation.