While it can be overwhelming and intimidating to think about what will happen to your family business if you pass away, it's always a good practice to be prepared for the worst. After all, as Forbes reports, fewer than one-third of family-run businesses survive from the first to the second generation. A lack of succession planning in the family business may be a key driver of this trend. As such, it's important for you to set forth your wishes for your business as soon as possible.
The Importance of Planning Ahead
By planning ahead, you can help ensure that your desires for your business are followed. If someone has a will, generally speaking, their assets will be divided in accordance with the instructions set forth in the will through a court process called probate. There are circumstances underwhich the court will not obey the will's instructions, such as existing legal documents. For example, someone cannot bequeath a business to their children if existing legal documents indicate the business was already sold prior to the individual's passing.
However, the situation becomes increasingly complicated in scenarios where there is no will in place. In this case, the courts appoint someone to run your business during probate. Unfortunately, this could be someone who doesn't know anything about your company. For example, your spouse could be a likely choice, even if he or she is not involved in the business in any way. In this scenario, your spouse might have to scramble to find a lawyer to both help adminster the estate and keep the business going. Once again, the lawyer may not know anything about your company. From there, the courts would eventually decide how to divide up the business between your heirs. Again, family members who have nothing to do with the business could become owners, even if they don't have the necessary background and don't get along with the other owners. This type of chaos can lead to major long-term damage to your company as a whole.
Establishing an Effective Will
When you write a will, you can designate the representative who will run your business during probate and the lawyer who will handle your case. You can give this power to your current business attorney, who likely understands the finer details behind your company. Your will can also include detailed instructions on how your business should operate during probate. For example, you can specify how the representative should handle day-to-day operations, whether he or she has the authority to sell or buy property and how he or she should manage financial transactions. Finally, your will can list how the business should be divided between your heirs. In order for your will to be considered legally viable, you must sign it in front of two witnesses. You do not necessarily need to have your will notarized, but doing so may potentially save some time during the probate process.
Putting your will together is an important step for succession planning in the family business, but it can only be effective if built properly. Consult an estate planning expert if you need more information. By planning ahead, you can help your family business survive for many generations to come.
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