By Stephanie M. Smith

In the day-to-day struggle to build and maintain a business, many small business owners ignore the possibility of their own death or disability.

The laws of intestacy-governing who gets the assets of a deceased person with no will-and the laws of guardianship and conservatorship-governing who manages the person and assets of the disabled-provide a plan for those who have failed to plan. Because every business is different, however, the "one-size-fits-all" laws rarely work well for the business with a disabled or deceased owner.

The result is that the business that was so carefully built up is thrown into chaos and may ultimately fail. Not only can the value of the business disappear for the owner's family, but taxes may be higher than they could have been with pre-planning, and the business' clients, employees and suppliers can suffer hardship as well. Even when the business owner does do some estate planning, it may not be enough.

Here are a few common estate planning mistakes business owners should avoid.

Failing to Plan
Failing to have any plan in place can result in confusion and dissension as the probate court sorts out who should be in charge of the business during the illness or after the death of the owner, as well as what should be done with the business. Even a simple durable general power of attorney with business powers and a simple will can go a long way toward eliminating some of these issues. A more elaborate plan could involve living trusts to avoid probate, tax planning to minimize estate taxes and buy-sell agreements with partners.

Estate planning is not something you can just check off the "to do" list and be done. Estate plans need to be reviewed periodically to make sure the business has not outgrown the plan, that designated successors are still appropriate and that changes in the tax laws do not require a change in the plan. For example, in the last 10 years, state and federal estate and inheritance tax laws have changed numerous times, and more changes are in store. A plan that was appropriate a few years ago for a smaller estate now may be unnecessarily restrictive on a surviving spouse. A larger estate may be wasting an opportunity to save more in estate taxes than was possible a few years ago.

No Plan for Temporary Operations
Business owners are in the best position to judge who should run the business if they become temporarily disabled.

There should be a business plan outlining who does what when a key person is unavailable, and this plan should be implemented with legal documentation to allow it to occur. An example is a bank account with only one person authorized to sign. What good is having a safety cushion in the bank if nobody else can access it to make payroll or pay suppliers in the event of an emergency?

Failing to Consider Partners
If more than one person owns the business, it is absolutely critical that a plan be in place to cover the possibility that one of the owners is disabled, dies or just wants out of the business. Do the other owners want to be in business with the deceased partner's family? If not, how will a buy-out be handled? Where will the money come from? Will the buy-out be immediate or over time? How will the business be valued? A buy-sell agreement can help iron out all of these issues.

No Disposition Plan
Business owners often lack a disposition plan if the business is not going to be kept in the family. If there is no obvious family successor, the owner should give some consideration to preserving value and providing for a smooth transition to new ownership to avoid damaging employees, clients and suppliers. The plan could be as simple as identifying a reputable business broker and having the information available or having an employee purchase plan in place.

Overestimating the On-going Value
In many families where one or two of multiple children are involved in the business, the owner over-estimates the value of the business to the involved child, thus creating problems for the next generation. For example, if the business provides a nice living for the owner and his or her family, it may not be realistic to expect it to provide an equally nice living for the next-generation family member working in the business and all of the siblings. In that case, for example, the owner might consider purchasing life insurance to provide a source of funds other than business receipts for siblings not involved in the business.

To often, people tend to postpone planning until the plan is "perfect." While there are undoubtedly many interrelated issues that should be considered and planned for, it is a mistake to postpone doing any planning at all until decisions can be made on every issue.

Having at least some issues resolved can help. For example, if the owners can't decide on the terms of the buy-sell, they can at least decide who should run the business if one of them is temporarily disabled. If the owner can't decide how to fairly divide up the assets to family members, he or she can at least appoint someone to be the executor and provide that assets are to be divided between the heirs in equal (or unequal) portions-leaving it to be decided later how to value the assets. The plan can always be modified or amended later, but the most important part is to have at least a basic plan in place.

Stephanie M. Smith is an attorney with law offices located in Prairie Village, Kansas. She can be reached at (913) 341-3778 or by e-mail at .