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Tactics for protecting a business when estate planning

On Behalf of | Jan 27, 2025 | Estate Planning

Many people begin estate planning because they want to protect their loved ones. For others, concern about their resources could inspire them to create or adjust an estate plan. Those who have started, purchased or inherited a business or professional practice may feel a sense of pride about the company. They may also have a sense of loyalty to clients, customers and employees. Seeking to protect the business in the event of a medical emergency or the death of the owner could be one of the main goals for a business owner during the estate planning process.

How can those who own businesses or professional practices protect their organizations through estate planning?

Separating ownership and management

Frequently, business owners who begin estate planning decide to establish succession plans. They identify candidates to take over their position and start working toward training those individuals. A successor for a leadership position does not necessarily need to be the beneficiary who inherits the company. In fact, when looking at the long-term success of the business, separating ownership from management can be a smart decision. Naming different parties as potential managers rather than those who may inherit the ownership interest of the company can help preserve the organization in the long run.

Establishing a business trust

Whether the business owner wants to pass the company to one of their children or all of their grandchildren jointly, there may be concerns about how those beneficiaries could handle the company. Sometimes, short-sighted beneficiaries make the questionable decision to sell a business. They deprive themselves of a source of long-term income for short-term profit from the transaction.

They may sell to a direct competitor or to a private equity firm that intends to dismantle the business. By creating a business trust, an owner can name a trustee to help oversee company operations. They can also prevent their beneficiaries from feeling intense pressure to run the company or from making mistakes, such as selling the business.

The nature and scope of a business, as well as the relationships of its owner, influence the best estate planning strategies for the preservation of an organization. Reviewing company documents and family circumstances with a skilled legal team can help people protect the businesses they run with a comprehensive estate plan.