You’ve put years into your business. You’ve built the client relationships, hired the team, and figured out the finances. You think about the future of your business constantly: growth plans, new offers, next year’s numbers.
But most business owners have never sat down to answer one of the most important questions of all: what happens to your business when you can’t run it?
Not temporarily. Not during a vacation or sabbatical. What happens when you die, or when a health crisis takes you out of the picture unexpectedly? Who runs the business? Who makes decisions? What happens to your employees, your clients, your contracts, and your accounts? And what does your family actually receive?
Make-A-Will Month is a good reminder to think about these questions. But for business owners, a will barely scratches the surface.
I work with business owners on exactly these questions, and the gaps I find are almost always the same.
What a Will Actually Covers for a Business Owner
If you own a business interest, a will can direct who inherits that interest after you die. That’s the extent of what it does.
It doesn’t keep the business running. It doesn’t give anyone authority to act while your estate is going through probate, which can take months. It doesn’t address what happens if you become incapacitated rather than deceased. And it doesn’t resolve any of the practical questions your business partners, employees, or clients will be asking the moment something happens to you.
If you have business partners, the situation can get complicated quickly. Who has the right to buy out your interest? At what price? Over what timeline?
If there’s no buy-sell agreement in place, your family could find themselves as unwitting co-owners of a business they don’t understand, alongside partners who never planned for that arrangement.
The bottom line: A will can say who gets your business interest. It can’t say how the business survives the transition.
The Gaps That Sink Business Owners’ Plans
The planning gaps that hurt business owners most aren’t exotic. They’re the things everyone means to get to and never does.
Here are the ones I encounter most often:
No buy-sell agreement. This is the document that governs what happens when a business owner dies, becomes disabled, or wants out. Without one, your heirs may inherit an interest in a business with no clear way to convert it to cash, and your partners may have no clear way to take over. The result can be conflict and, in some cases, litigation.
Business assets not separated from personal assets. If your business and personal finances are tangled, a crisis in one can create a crisis in the other. Your family’s financial security shouldn’t depend entirely on what happens to your business in the months after your death.
No incapacity plan. A will only becomes effective after you die. If you’re incapacitated after a stroke, a serious accident, or an illness, who has legal authority to run your business? Without the right documents in place, no one may have the authority to act, including your spouse.
Key person life insurance improperly structured. Many businesses have life insurance on key owners or partners, but if it’s structured incorrectly, with the wrong ownership or beneficiary designation, it may not accomplish what you intended and could create unnecessary complications.
The bottom line: Business owners have more planning exposure than almost anyone. The gaps in a business plan don’t just affect you. They affect your employees, your clients, and your family.
What “Funded” Actually Means
A funded buy-sell agreement means the money to complete the buyout actually exists when it’s needed.
One common mechanism is life insurance: each business owner may hold a policy on the other, and the death benefit can help cover the purchase price when a triggering event occurs.
Without funding, surviving partners may have to liquidate business assets, take on debt, or negotiate a payout schedule with the deceased owner’s family at the worst possible time.
But the funding is only as useful as the valuation formula behind it.
A buy-sell agreement signed five years ago may name a purchase price based on book value, or use a formula that made sense when the business was half its current size. If the surviving partner buys out the estate at a stale, below-market price, the deceased owner’s family could receive far less than what that share is actually worth. If the formula produces an inflated price, the surviving partner may not be able to complete the purchase at all.
Disability is another gap I see many buy-sell agreements miss.
An agreement that addresses death but not disability can leave a situation where an owner is permanently incapacitated but still alive, creating years of uncertainty or deadlock if the agreement doesn’t establish clear terms and a funding mechanism for that situation.
Insurance products may be available specifically for disability buyouts, but they generally need to be put in place before they’re needed.
The bottom line: A buy-sell agreement is only as strong as its funding and its valuation. Both need to be reviewed regularly as the business grows.
What Your Family Faces Without a Business Plan
When a business owner dies without a complete plan, their family faces something that few people outside this situation fully understand: a business that needs to keep running while the family is simultaneously dealing with grief, legal complexity, and financial uncertainty.
Employees need to know whether they still have jobs. Clients need to know whether their contracts will still be fulfilled. Vendors need to know who to call. Banks and other institutions may restrict access to accounts while authority and ownership issues are being resolved.
And your family, in the middle of grieving, may have to make decisions they’ve never been prepared to make about a business they may not fully understand.
Without the right plan in place, they may receive far less than the business was actually worth because a business that suddenly loses its key owner can lose value quickly.
The bottom line: The value of your business to your family depends in large part on how well you planned for your exit, whether you meant it to be your exit or not.
What a Holistic Business Owner Plan Looks Like
A full plan for a business owner addresses both the personal and business sides because the two are inseparable.
On the personal side, it includes a Life & Legacy Planning® process that covers your full asset picture, including your business interest, and creates the appropriate structure for your family and goals.
On the business side, it may include a buy-sell agreement that sets clear terms for what happens to your interest, key person insurance structured appropriately, and clear documentation of who has authority to make decisions in your absence.
As a LIFTed Business Advisors attorney, I look at your whole picture: not just the estate planning, but the business structure, the tax implications, and the insurance gaps.
These pieces don’t work in isolation. A plan that handles only one of them may leave important questions unanswered.
The bottom line: A complete plan for a business owner isn’t one document. It’s a coordinated system designed to protect both the business and the family.
Why This Isn’t a DIY Situation
Business succession planning touches legal, financial, insurance, and tax issues at the same time.
A general estate planning attorney may not address the business side. A business attorney may not think about the personal estate. An insurance agent may not know how the policy fits into the larger plan.
As a LIFTed Business Advisors attorney, I bring these pieces together and ask the questions that can fall through the cracks when advisors don’t coordinate with one another.
Questions like:
- Is your buy-sell agreement funded?
- Does it account for disability, not just death?
- Has your valuation formula kept pace with your business growth?
- What tax considerations should be addressed when ownership transfers?
- Who has legal authority to run your business if you’re incapacitated tomorrow?
The bottom line: Business owners need more than a will. They need a plan that works for the business and the family at the same time.
What You Can Do This Week
For business owners, the more urgent question isn’t simply whether you have a will. It’s whether your business can survive without you, and whether your family will be okay if it can’t.
As a Life & Legacy Planning attorney, I look at your full business and personal picture through the LIFT: Legal, Insurance, Financial & Tax Systems™ framework to identify where the gaps are and map out what needs to happen and in what order.
To learn more about our planning process and how we help California business owners protect their businesses and their families, contact us or schedule a 15-minute introductory call today.