The Business of Family

The Business of Family

by Stephanie Morrow, December 2009

Starting a business is the most daunting task an individual can face. Not only does it take a large amount of time and money, but also substantial family support. Once your company flourishes, how do you protect your family from unforeseen disaster?

Many business owners take out loans to help grow their enterprise. A sole proprietorship or partnership relies heavily on loans. Unlike a corporation, they cannot raise capital through shareholders. These loans are typically secured by personal assets collectable by creditors.

If you have business loans and were to pass away before they were paid off, could your family just sell your business to cover debts and still have enough to secure them financially? Probably not. When business owners die, covering debts is one thing, paying hefty estate taxes is a whole new ballgame. The estate has to cover both.

When a family is forced to sell a business quickly, they may have to sell it at a discount. The value of the business may be miscalculated without your expertise. Your retirement fund, established to protect your family's future, may have to be liquidated to cover these taxes, which are due in a relatively short time period.

There are many ways you can protect your family, right now, in the event of your death. Here are some common options:

Life Insurance

Individual life insurance can protect your family by providing funds to cover debts. However, an insurance policy does not grant 100% protection. While a million-dollar life insurance policy may seem like the answer to all your problems, upon your death, it turns into one million dollars of taxable income.


Many business owners set up an annuity for their loved ones. To begin an annuity, you simply give money to an insurance company and they invest it to your credit, allowing specified monthly payments to your family in the event of your death.


Another option is creating a trust, which gives you control over what happens to your funds after your death. Trusts protect your family, particularly children who are minors and unable to make decisions regarding their future.

While these are three viable options, the most important method to protect your family's future is a well-developed estate plan.

Failing to put an estate plan in place can result in expensive consequences. Without one, the court automatically distributes your estate according to state law, deciding who will run your business and manage your assets, regardless of your wishes. Your assets will be valued and listed in the public record and your creditors will be notified so that they may make a claim against your business.

When you do develop a plan, you reduce the estate taxes while protecting your family's financial future should you become disabled or die. It allows you to give your assets to whom you want, the way you want, and when you want. Once you minimize your taxes, you maximize the inheritance of your beneficiaries.

An effective estate plan can be used to do the following:

  • Identify who will inherit your estate.
  • Distribute your assets properly so that the court isn't the one making the decision.
  • Creating a trust, if necessary, for any minors to inherit assets.
  • Choosing an executor to settle your estate according to your plans.

Select beneficiaries, save thousands in taxes, and protect the future of your family - all with an estate plan. As always, consult your financial professionals before beginning any legal financial process.