Few people think about what will happen to their business after they die and therefore rarely put together a plan. Fewer may even think that a family or closely held business should be considered a part of their estate plan. However, for many small business owners, their financial interest in their business may be the largest asset that they have and represent most of the wealth that they will transfer at the time of their death. When transferring a family or closely held business, a well-funded life insurance policy can play a very large role in a smooth transition.
Providing For Your Children
There are a number of contingencies that a business owner has to consider when transferring their interest in their family or closely held business. While family businesses may be a truly family affair, with children working, operating and managing the business as well as the parents, it is a fact of life that not all of the children may be interested or suited to taking ownership of the business. In some cases, there might not be any children that wish to take over.
In dividing up shares and interest in the business to children when planning an estate, it may be difficult to equitably divide the assets. After all, it might not be feasible to simply cash out beneficiaries who no longer wish to retain any interest in the business. If someone wishes to maintain the business, giving out the equity in the business may represent a major hurdle. This is where a life insurance policy can come in handy. A life insurance policy can grant the business the necessary cash to divvy out at the time of death of the now deceased primary owner.
Keeping the Business Running Smoothly
Insurance policies can also play a significant role in ensuring that your business can meet its cash flow needs after you have passed. A life insurance policy will guarantee liquidity to cover expenses for your business during the transition period after you have passed on. If you were the primary producer at your business, a life insurance policy can also ensure that there is enough money to maintain the business until your lost production can be restored.
As with all estate planning, it is best to consult with a professional when utilizing life insurance policies to insure business operations and business succession. Properly used, life insurance policies can take out some of the uncertainty of your future and make sure that the people you care about and the business you have worked hard to create is taken care of well into the future.
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