Seattle residents often put a substantial amount of time and effort into developing and running their business. It can take years before their business becomes profitable and earns enough goodwill in the community for it to be successful. As a result, a significant amount of their wealth and future source of income is tied up in the business. While the business owner is alive and running the business all is well, but neglecting to plan for what will happen after the owner’s death can leave family members struggling.
Many businesses, like those run by doctors, accountants, lawyers and architects are considered owner-dependent. In these models, the owner has independent control of the business and is directly involved in its running. Since little is spent on payrolls and training, the business is usually highly profitable. Usually, this type of business ends when the owner passes away. However, this does not mean that there should be no estate plan that documents this wish—without a clear purpose in mind, it is possible that an owner dependent business transforms into a generational one.
While the business is in existence, the owner should take steps to prove the intent to end their business upon their death. This includes the business plan and characteristics that prevent the business from transferring to others. This is essential to ensure that surviving members do not end up paying estate tax on a business that is no longer in existence.
Creating an estate plan in this situation will also require looking at the business to determine liability insurance and indemnification, in case of the owner’s untimely demise. Creating a thorough estate plan that caters to the nature of the business and protects the future generation’s wealth can often take time, which is why getting a timely start to the process can be beneficial.