Why Write a Will For Your Business

by Cynthia K. Hoffman

While estate planning is an issue that most business owners want to avoid, it is a task essential to any company's long-term survival. And, if the business comprises the largest part of the owner's etate, a family's financial stability may depend on it, too. With this in mind, it is important for a business to have the most basic legal instrument of all estate planning tools--the business will.

Unlike traditional estate plans, which focus on tax minimization, business wills cover the issues and problems that might arise when a privately held company passes from one generation or set of owners to the next.

• Future financial options. You should consider whether the business is to be sold, liquidated or continued. Any potential buyers should be included here.
• Instructions to a spouse. It is important to document everything relating to your corporate and personal assets (e.g., the locations of all safety deposit boxes and investment accounts), even if your spouse will not actively run the business. This document should discuss management plans, shareholder agreements, buy-sell agreements and other issues vital to the company's future. By keeping your spouse informed, you will avoid the risk of having him or her disrupt the daily activities of the business.
• Employee updates. Once you have taken the necessary steps to ensure the survival of your business, inform your employees of the details. It is good for employee morale.

While a valid will is a good starting point for an estate plan, the will must be reviewed periodically to assure that an owner's most recent intentions are honored upon his or her death. To make sure that an estate plan is up-to-date and effective, the accounting firm of Coopers and Lybrand suggests performing the following annual check-up:

• Does the management-continuity plan identify the owner's successors? Of so, are these successors trained and ready to take over, when necessary?
• Is the insurance coverage adequate to keep the business going?
• Are financial arrangements up-to-date? For example, are new sources of capital to fund expansion, purchases, new product lines and buy-sell agreements identified?
• Is the business properly valued?
• Does the company have compensation and benefit plans that will attract and keep first-rate employees?

Finally, keep in mind that family situations change, laws change, the tax structure goes through a periodic revolution and economic forces run through cycles. These changes create risk, uncertainty and the need for constant attention and occasional revisions to the plan. By setting up first-rate plans and monitoring them, however, business owners can go a long way to ward ensuring management continuity--especially during the early days of management succession.

This information is based upon a general understanding of current law. It is not intended to provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors when this information relates to your specific situation.