Depending on the extent of your assets and the specific nature of your wishes planning your estate optimally can be somewhat complex, so the earlier you get started on the plan the better. The need for advance planning is all the more important for people who own their own small businesses because what you intend to do in the future has very real impact on the actions that you would logically take in the present.
For example, if you have an owner-dependent business such as a professional practice it is your own specific expertise that is the “product” that the business has to offer. As a result it may have little value on the open market after you pass away, and this is something to consider when you’re planning for the future.
On the other hand, if your business is built to last into the next generation and beyond and you intend to keep it in the family you are likely to reinvest profits in an effort to strengthen the infrastructure and create long-term growth. If you intended to sell the business when you retire you may be less likely to do so as you proceed in an effort to optimize its resale value when the time comes while taking profit out of the business.
Life insurance can play a role in business succession planning. For example, suppose you have two children, your business is your most valuable asset, and one of them is going to take over the business after you pass away. To even things out you could take out a life insurance policy equal to the value of the business with your other child as the beneficiary. Insurance policies are also used by small business partners for succession planning purposes via the use of buy-sell agreements.
There are a number of different approaches one can take when creating a small business succession plan. For most people the best way to proceed would be to arrange for a consultation with an experienced estate planning attorney who will analyze your specific situation, take heed of your wishes, and make the appropriate recommendations.