Estate Planning: The 3 Basic Things Entrepreneurs Must Do Before It’s Too Late
Estate planning? Estate planning?!?! For entrepreneurs?!?! Seriously? Why? Because stuff happens. People unexpectedly get hit by buses, fall off of cliffs, and have heart attacks. And sometimes those people are entrepreneurs who have businesses and children and dogs. When stuff happens to these people, a void is left that should at least be briefly considered in advance. Estate planning for entrepreneurs starts with context. Does the business and/or family situation warrant the time and cost of estate planning? Here are two simple rules of thumb:
- Is the business (or businesses) making money or booking substantial investment?
- Does the entrepreneur have a child?
- A basic “living trust” to own Peter’s stock. Peter controls the stock, while he is competent, through the trust in the same way as he did when he owned the stock outright. The trust would nominate one or both co-founders to control and vote the stock after Peter's accident. The trust avoids the need for Peter’s wife to go to court to obtain legal authority over the stock.
- A basic shareholder agreement to determine (a) what happens in case something happens to a co-founder (buyout, status quo, etc.) and (b) to fairly treat Peter, his family and the business if Peter becomes disabled or dies (setting a price and payout period for buy-out).
- Some inexpensive term life insurance to provide liquidity to the company for either (or both), a buy-out in case of Peter's death or to replace Peter’s lost talents with someone new.