Request a Meeting

Request a Meeting

Seven Documents Every Business Owner Needs

Gary Pittsford, CFP®

Director of Financial Education

Last Updated
May 20, 2022
Estate Plan, Living Will, and Healthcare Power of Attorney documents

How Having the Correct Legal Documents in Place Can Help Protect Your Wealth and Your Business

Running a successful business often leaves little time for anything else. Other priorities must take a backseat to the more pressing tasks associated with running your company, serving customers and supporting employees. However, if you haven’t taken the time to implement certain legal documents, you may be putting yourself, your business and your family at risk. That’s why it’s important to make it a priority to look into implementing the following documents, which can help protect not only your business, but also your long-term financial goals.

Document #1 – An up-to-date will

Think a will is just about designating who will receive your assets after you die? Think again. While the transfer of assets is an important reason to draft a will, equally important is to designate a guardian for your children should something happen to you. If you pass away without a will in place, a judge will decide who will care for your kids. A will also allows you to leave certain special personal assets to family members or friends.

Your will should be reviewed and updated every three to five years.

Even with a will in place, your estate will still go through probate, which can be a long and contentious examination process, especially if family members challenge the provisions of the will. That’s why it may make sense to also establish a revocable living trust (see Document #2).

Document #2 – A revocable living trust

It’s wise for business owners who maintain voting control of their companies to implement a revocable living trust. The benefits of establishing a revocable living trust include the following.

  • Ensures your wishes are carried out while you are alive – A revocable living trust allows you to designate a successor trustee to manage your financial affairs in the event you become incapacitated. Without this protection in place, your loved ones may have to go to court to determine your estate distribution.
  • Keep your personal affairs private – A trust ensures confidentiality for you and your heirs.
  • Distribute your assets faster – Assets and property can be passed more quickly to heirs by avoiding the probate process.
  • Helps avoid the probate process and its associated costs.
  • Eliminate the requirement of public notices – Public notices are required with a will, not with a trust.
  • Distribute assets held in multiple states – A trust allows you to avoid probate in all states, which is a tremendous advantage for those who hold assets in different states.
  • Maintain full control over your assets – As the named trustee or co-trustee, you continue to control all property and assets held within the trust. There is no separate tax return.
  • Achieve your estate planning goals – Unlike jointly owned assets, assets held in revocable living trusts avoid probate upon both spouses’ deaths and can aid in estate planning.

Document #3 – General durable financial power of attorney

A general durable power of attorney for finances allows you to designate someone to make financial decisions on your behalf should you become incapacitated.

From a business perspective, you must consider who will control the company and its assets if you are unable to do so. Who will make financial decisions for the company on your behalf?

The power of attorney document should also authorize a designated individual to continue making any already-established gifts of stock or other assets. For example, if you have an eight-year gifting plan to transfer ownership to one of your children, and you become incapacitated in year four, you’ll want to make sure your designated person has the authority to continue with the plan over the next four years.

From a personal perspective, if you do not have a durable power of attorney for finances and you become incapacitated, your loved ones will have to go before a judge to request authority to handle your financial affairs. When this occurs, the court must hold a public hearing to determine what is most certainly a very private matter. Like any other court proceeding, the process can take a significant amount of time and require lawyers and considerable expense.

Put simply, a general durable power of attorney saves your loved ones a lot of headaches, time and money, and helps ensure the person managing your assets and your business is the person you have chosen to do so.

Document #4 – Durable health care power of attorney

A durable power of attorney for health care gives another person the authority to make health care decisions for you if you are not able to make them for yourself. The person you name as your health care agent should be someone you trust to carry out your wishes, such as a spouse, close relative or friend. The agent you select will likely have to deal with family members, doctors and others who are motivated by their own beliefs and interests, so it’s important to choose an agent who will stand up for your health care wishes. It’s also important to communicate these wishes to your agent prior to an unexpected event.

Your attorney may advise you to file copies of your health care power of attorney with your physician and local hospital so your wishes can be quickly accessed in an emergency situation.

It’s wise to review both powers of attorney (Documents #3 and #4) every four to five years to help ensure they continue to meet both your personal and business needs.

Document #5 – Buy-sell agreement

If your business has two or more owners, it is important to prepare an agreement that outlines what will happen to each owner’s company stock in the case of death, disability, divorce, personal bankruptcy, termination or retirement. This agreement should clarify how the business will be valued and the length of time for the stock to be purchased.

Document #6 – Business letter

If you, as the business owner, experience an unexpected accident or illness, a business letter can help clarify who has the authority to carry out certain business functions, such as signing payroll checks, transferring cash, and dealing with suppliers and vendors. The business letter should also include your password information for necessary accounts and software programs. The letter should be attached to the financial durable power of attorney.

Document # 7 – Personal letter

It can be difficult to talk with your children about your expectations for how your business will be handled upon your death. However, if your children are unsure of your wishes, they may argue about the best way to manage the company and handle your assets. Take time to write a letter that details your vision for how the business should be run, who should have voting control and how your net worth should be distributed. This can save a lot of pain and heartache should you unexpectedly die.

If you’d like help establishing these important documents, Castle Valuation is here for you. We specialize in helping business owners manage their companies and navigate the succession/exit planning process. As a division of Creative Planning, a nationally recognized wealth advisory firm, we are supported by a team of credentialed, educated, experienced and action-oriented advisors, including CERTIFIED FINANCIAL PLANNER™ practitioners, certified public accountants, insurance specialists, attorneys and other professionals dedicated to helping you achieve your goals. We work together to help ensure all aspects of your business and personal finances are well cared for. To learn more, please schedule a call.

Let’s Talk

Find out how Creative Planning can help you maximize your wealth.

This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

Recent Content

“Your wealth works harder when it works together.”

Peter Mallouk

President & CEO, Creative Planning

Serving Clients Nationwide

50

STATES & ABROAD

Providing financial peace of mind across the globe

$225

BILLION

Combined assets under management & advisement as of December 31, 2021