Documents Every Business Owner Needs
If you own a business you are generally an optimistic person. Firstly, you believe there is a solution to everything, secondly, if you treat your customer’s right they will treat you right, thirdly, if you look after your employees they will look after you and finally, you will live forever.
I can’t say I disagree with the first three but we both know the fourth one is wrong. As we won’t live forever and we’d like our business to, there are four documents that not only need to go into your business plan but they also need you taking action. These four documents and where they fit in are as follows:
Last Will and Testament
Many of us are familiar with the need for a last will and testament. The purpose of this document is that it details how you would like the property or assets you own distributed at your death.
The process is therefore fairly simple and basic. Make a list of all the assets that are important to you and then decide who gets what.
Make sure you have a clause to cover items you may forget to give or items you may acquire after you write the will.
Also, make sure you include a clause that stipulates how taxes will be paid. If you forget this clause, the person that receives your asset will most likely be charged the tax by the government. Alternatively, they could decline to accept the gift and therefore defeat your purpose in the first place.
A Living Will is not a last will and testament. The purpose of the Living Will, also called a “healthcare directive” is to state how and what medical treatment can be given to you if you are unable to make that decision yourself.
This is therefore a critical document and something to give thought to before you have it prepared and signed. It says what medical treatment you would like to receive and under what circumstances and just as importantly, what medical treatment you want to decline.
The Living Will removes ambiguity, provides your doctors with what you do and don’t want and provides authority to the person you want to make decisions on your behalf.
A Living Will becomes the most effective when:
- You are diagnosed being close to death from a terminal condition or to be permanently comatose.
- If you are unable to communicate your own wishes for your medical care be it orally, in writing or with gestures.
- If your medical care providers are not notified in writing of any written directions for your medical care.
Most Living Wills provide for a proxy. A proxy is similar to a power of attorney except it is limited only to the Living Will, that is, the proxy only has authority to see your wishes are followed as you state in your Living Will.
Finally, a Living Will does not operate as a last will and testament as it only assists your medical decisions.
The purpose of a Living Trust is that it allows you to state how you want to transfer ownership of your property to your beneficiaries until your death. This therefore prevents you losing control of your property while you are alive and then when you do die, it states who will be the Trustee to take over your property and make sure any distributions take place according to your wishes.
If you therefore own and operate your own business, this is the place to state what happens to the business and who will be responsible for its ongoing operation and management.
A benefit of a Living Trust is that it may avoid probate. It does not however, avoid creditors or taxes but it does provide for a quick and efficient way to distribute your property which in the case of a business can be critical to its ability to effectively continue.
Power of attorney
The final document that’s part of a well prepared estate plan is the Power of Attorney. The purpose of this document is to give authority to one person you trust to take over and make sound financial decisions for you when you are not able to do so.
The Power of Attorney does not become effective until it is executed by the person you state in this document. For this reason, you can always change your mind and name a new individual; as long as you are of sound mind.
These four documents are legal documents. To get the best and right advice, consult with an attorney that specializes in this area of the law such as an Estate Planning Attorney. To find an Estate Planning Attorney, see if there is a County Bar Association where you live or ask an attorney or CPA or someone else you trust for a recommendation of two or three and make contact with each of them.
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