Succession planning for your business can be a daunting thought. Unfortunately, many people continue to grow their business without planning for what will happen when they retire or die. Small business owners are particularly hesitant about estate planning because they are overwhelmed with day-to-day operations. Additionally, they are often reluctant to make decisions that may be unpopular or detrimental to their employees or family members. However, business owners can easily start their business succession planning by taking small steps while they are still actively operating their business.

An often overlooked business tool is key person insurance. Key person insurance is an insurance policy taken out by a business that would financially compensate for the permanent or temporary loss of a key employee of the business. All those people who are an integral part of the business and whose presence contributes financially to the company may benefit from this type of policy. These insurance policies can compensate for many types of losses, including the costs of replacing or hiring a key employee; loss of a business project worked on by the key employee; insurance that protects the interests of society; and insurance related to commercial loans.

In addition to insurance, there are many other ways to achieve a smooth succession to your business. For the next two years, Congress has initiated an estate tax exemption program that will allow you to give up to $5 million to one person and $10 million to a couple. This is an incredible opportunity to ensure that your liquid assets are delivered to the people you believe will protect your business in the future.

Another way to protect the succession of your business is through a cross-purchase contract of sale. This agreement would allow the surviving partners of a company to purchase the deceased partner’s interest at a predetermined price. This purchase money can be financed by the partners who buy insurance policies from each other and use this money to pay for the purchase.

Creating a living trust is another opportunity to plan for your business succession. A trust is a legal entity that allows another person, the trustee, to hold legal title to property for a beneficiary. A living trust is established during one’s lifetime rather than after death. This arrangement can be beneficial in reducing estate taxes and avoiding probate. It is important to avoid the arduous probate process because businesses often need to make quick financial decisions after the death of an owner.

Estate planning and small business attorneys can provide you with the critical information you need for the safe and effective succession of your business. It is never too early to consult a professional when your family’s livelihood is at stake.