Three Estate Planning Questions for Business Owners

According to the American College of Financial Services , "The ultimate goal of estate planning is to fulfill the estate owner’s wishes as closely as possible."

If we accept this common definition of estate planning, estate planners must have the answers to these three estate-planning questions: If the proverbial Mack truck hits you today:

  • Will your business continue without you?
  • Will your designated successor run the business, with minimal disruption?
  • And if your business sells for its full value and your family receives the cash today, will the current income you spend today continue for your spouse's lifetime?
  • Most owners have not been asked these questions, nor have they given much thought to possible answers. Exit Planning provides a path to ask these questions in the context of lifetime exiting. In answering these lifetime-centered questions, owners must articulate their lifetime goals regarding business ownership and family financial-wellbeing and you use them to create their estate plans.

    Estate Planning For Business Owners

    Let’s look at an example of how goal-based estate planning for business owners plays out in a fairly straightforward situation.

    Your owner-client has determined that when she exits her business (presumable alive!):

  • She needs $250,000 of income per year for the rest of her life (and that of her spouse),
  • She wants to transfer the business to two key employees, and
  • She wants to be certain that other employees’ positions are secure at the company after she transfers the business.
  • In setting her lifetime or exit planning goals, this owner, like most, has also set her estate planning goals. Your job is to make sure she achieves them—whether she leaves her business dead or alive!

    To do so, you must craft (or modify existing) business continuity arrangements as well as create (or modify existing) estate planning arrangements to reflect the owner’s clearly articulated lifetime and “at death” wishes.

    Of course the pressing question is: can the owner's wishes listed above be attained should she depart from this earth or her business tomorrow? The ability to answer this question (and taking advantage of the opportunity it offers) separates every-day planners from great ones.

    Consider that most owners want to exit their businesses within the next 10 years. [1] You can safely assume that these owners have given (or are willing to give) far more thought to what they want and need (for themselves, family and business) when they exit in the near or not-too-distant future than they have to what will happen (to their families and businesses) upon their one-day-but-not-any-day-soon demise

    You must capitalize on their willingness to focus on today. That focus creates urgency that you can use to open a discussion about that other day: the day they die. Certainly owners are more receptive to your appraisals of how they can reach their lifetime goals than they are to discussions of what they will need should they not make it to retirement. To open the discussion and link lifetime goals and estate planning objectives, start with the three questions listed at the outset of this article modified as follows:

  • If you left your business today, never to return, could it continue, with minimal disruption, in your absence? Would this be true whether your absence was due to a lifetime decision or to your death?
  • If you left the business today, never to return, could your designated successor run the business, with minimal disruption? Would this be true whether your absence was due to a lifetime decision or your death?
  • If you sold the business for its full value and received cash today, would your income continue for your and your spouse's lifetime, with minimal disruption? Would this be true whether your absence was due to a lifetime decision or your death?
  • Once you engage owners in Exit Planning they begin to: 1) understand the gap between existing resources and capabilities and those needed to permit a successful exit, 2) see that the same gap exists if they die, and 3) take action to bridge the gap.

    If you haven’t already included estate-planning professionals in your network of professional advisors, do so. Look for professionals who see the value in linking lifetime (or Exit Planning) and estate planning goals and have the expertise to create business continuity arrangements that are consistent with estate planning solutions. They play an important role on your Advisor Teams at the beginning and throughout your exit planning engagements.