Personal health is critical to providing for your loved ones, but you cannot always count on your ability to earn an income. You may be diagnosed with a critical illness, be involved in an accident, or pass away unexpectedly. While you cannot predict if or when these sudden family crises may occur, you can plan for what you want to happen when you are deceased or cannot make decisions independently. You can plan ahead through the process of estate planning.
Below, we cover more about the benefits of protecting your wealth and your family as an entrepreneur through effective estate planning. We also explain the risks of delaying your estate planning and explain how succession planning differs from the overall management of your estate.
What is Estate Planning, and Why is it Important?
Estate planning is an important strategy of an integrated wealth planning approach. It is the process of putting a documented plan in place that dictates what will happen to your assets (big and small) upon your incapacitation or death.
There are many components of estate planning for business owners, including:
- Power of Attorney selection
- Planned giving strategies
- Trust planning
- Family discussions
- Legacy planning
- Wealth transfer
- Will schematic
- Business succession with and without partners
- …and more
The estate planning services you opt for will be a matter of your unique circumstances and preferences. However, the key to successful estate planning is working with a strategic wealth advisor who can evaluate your current financial situation and support you through the process.
The topic of estate planning may feel challenging at first, but once completed, you will be glad you secured your peace of mind and your family’s future security.
Benefits of Estate Planning
Failing to plan is planning to fail, and the consequences of delaying your estate planning often fall on the people you love most of all in your life. Considering and discussing estate planning can be uncomfortable. However, it is ultimately a tremendous act of love to “get all your ducks in a row” well before your disability or death.
The key benefits of estate planning for entrepreneurs include:
- Reducing the burden on your loved ones while they are grieving
- Protecting the value of your business
- Ensuring the value of your business ends up in the hands of your family
- Solidifying your wishes “on paper”
- Reducing taxation on your assets
- Clarifying your planned charitable or legacy giving
- Prompting family conversations about your plan
- Securing your legacy plan
- …and more
Ultimately, estate planning helps ensure your family is crystal clear on your wishes. While you may think your spouse or children already know exactly what you would want, they likely do not completely understand your goals for each and every asset.
They may also be unaware of the philanthropic or legacy goals you have set for yourself or how much of your estate you dedicated to planned giving. For example, you may have a treasured family heirloom or perhaps you’ve always dreamed of funding a local animal shelter. Will your family know what to do with your personal items or how much you planned to allocate to the shelter? Don’t let them stress over it. Take the guesswork out of the equation by stating clearly what you want to do with all your assets upon death.
Estate planning today helps your loved ones during one of the most challenging times in their lives. Solidifying your plans can also make a difference in the tax efficiency of your wealth distribution, which ultimately leaves more money in your family’s pocket.
Risks of Not Doing Estate Planning
Many people delay their estate planning because they believe they have more than enough time to arrange their affairs. However, life can be unpredictable, and tomorrow is never guaranteed. Therefore, it is prudent to work with a wealth management advisor who can assist you in speaking with your family and solidifying your plans for the future.
Delaying planning your estate can result in many negative consequences, including:
- Delaying the distribution of your assets
- Fracturing family harmony
- Increasing stress and uncertainty for your loved ones
- Incurring significant expenses for legal fees to finalize your estate
- Reducing tax efficiency for your heirs
- …and other considerations
The risks of not planning your estate are numerous and often cause significant tension within family units such as conflicting views about what you would have wanted and disagreement about the distribution of your assets. Your wishes and legacy goals may also get lost in the shuffle of settling your affairs.
In addition to confusion surrounding the settlement of your estate, there can be financial consequences as well. For example, there could be delays in the distribution of funds, you may reduce your tax efficiency, or your family may incur significant legal fees to resolve issues or uncertainties. Therefore, it is essential to arrange as much of your estate as possible while in stable mental and physical health.
Estate Planning Versus Succession Planning
While estate planning considers your end-of-life wishes and the distribution of all your assets, succession planning focuses on what will happen with the management of your business.
The succession planning process helps you think through what you would like to occur to your business upon your incapacitation or passing. It is also an opportunity to initiate open and honest conversations with your spouse and children about whether they have an interest in taking on the management of the family business.
While succession planning is an integral part of arranging your affairs, you can confirm succession plans separate from or as part of your overall estate planning.
Some of the important questions to consider when developing a succession plan include:
- Will the business be passed down to the next generation or be sold to liquidate assets?
- Who in the family has an interest for the business, has joined or plans to join? Do they have the same vision for the business?
- Do you have a partner and if so, what is your partnership agreement? How does it affect your business after you die or become critically ill?
- Who will assume the key roles to keep the business going? Do they need to learn specific skills to keep the business running efficiently?
- How will ownership and sale of the business be managed?
Take Advantage of All the Benefits of Estate Planning
Putting in place effective strategies to manage and grow your wealth is crucial for any entrepreneur and estate planning is one of them. Estate planning has many benefits as it allows you to leave a legacy and better protect your family and your business while saving taxes.
If you are an entrepreneur, a dentist, or a health professional, The St-Georges Group can help you see more clearly in the management of your assets. After taking the time to listen to you, we will present you with a plan that will suit your unique situation.