Estate Planning for High-Net-Worth Business Owners: What’s the Difference?

Succession Planning Resource Author

As a business advisor, it is crucial to prioritize succession planning for your clients. This planning involves several components, including personal wealth and estate planning. However, estate planning for high-net-worth business owners differs significantly from estate planning for the average person. Given the value of their business, business owners have often considered one-percenters and, as such, require more complex planning.

When drafting a will or trust, significant differences exist between the documents created for high-net-worth business owners and those created for the average person. Even a tiny error, such as inserting one word, can have significant implications for future generations. For example, using the word "shall" in a trust intended to take advantage of an estate tax exemption dollar amount can inadvertently take money produced by the trust out of a non-taxable environment and back into the beneficiary's taxable estate. Such mistakes can significantly impact the smooth running of a high-net-worth business.

In smaller environments, general practitioners often draft estate planning documents for the 99% rather than the one-percenters. As a result, they may make mistakes that can have significant implications for high-net-worth businesses. As a business advisor, it is up to you to ensure that your clients' succession planning aligns with their unique business needs.

High-net-worth businesses typically require more management, capital, and risk than an average business. Therefore, avoiding the probate process as much as possible is crucial, as it can tie up the business in court and bog down operations and, ultimately, performance. Additionally, many businesses rely on some form of debt to continue running, and business owners often personally guarantee that debt. As a business advisor, you must take the necessary steps to build the creditworthiness of the next generation and relieve the business owner of personal guarantees of that debt.

In short, business advisors must pay careful attention to the unique needs of high-net-worth business owners regarding succession planning. By doing so, they can help their clients avoid costly mistakes and ensure the smooth continuation of their business. Consider signing up for the Certified Succession Planner designation to understand the intricacies of estate and succession planning for high-net-worth business owners.

Categories: Personal Financial Planning