The Revocable Trust
The most important document is a Revocable Trust (sometimes referred to as a “Living Trust”). If you have not established and funded a Revocable Trust, when you pass, your loved ones will likely be subject to a difficult, costly and public court process called “probate.” By creating and funding a Revocable Trust during your lifetime, your family avoids probate on all of the assets held by the Revocable Trust. This keeps your financial affairs private and out of court, your family will pay less in both administrative and legal fees, and it ensures uninterrupted access to funds for your loved ones upon your death.

For all intents and purposes, the Revocable Trust is you, during your lifetime. You create it, you fund it, you can amend it as often as you wish or even revoke it, and the assets are wholly yours during your lifetime. A Revocable Trust may also be a powerful succession tool, depending on the nature of your ownership and control of the company. If you own your company outright, a Revocable Trust enables you to designate who will inherit the company while ensuring that the right individuals control the management and voting decisions of the company, which is crucial for the company’s continued success. If your company has investors, you may be more limited in what control you can transfer in your company. However, it is common for your equity to be purchased on your death by the surviving equity holders or by the company. Here, a Revocable Trust empowers you to strategically allocate such buyout proceeds upon your passing.

The question of who will inherit your company shares or receive the proceeds of a buyout upon your passing is an issue that you must consider carefully. You may choose to identify a spouse, children and/or other family members to receive the proceeds. Whomever you choose, it is often advantageous to set up continuing lifetime trusts for your beneficiaries under your Revocable Trust. This generally minimizes future transfer taxes, protects the trust assets from the creditors of a beneficiary if structured properly (including against ex-spouses in a divorce), and can limit the beneficiaries’ access to the funds to certain standards, if desired, so that you can support them without thwarting ambition.

If you can transfer control of your company to your heirs, the question of who will manage the affairs of the company upon your incapacity or passing is another issue you need to think carefully about. Most likely, your Revocable Trust will hold the majority interest, or at least the voting interest in your company, which will be held for the benefit of the trust beneficiaries. You can specify who will be authorized to vote your company interests and effectively manage the day-to-day affairs over your company (assuming you own a controlling interest). This person need not be a beneficiary of the trust—it could be a family member, a friend or even one or more trusted employees. This authorization is typically achieved through appointing a trustee or an “investment advisor” to vote the interests of the company and control management decisions. While there are many options on how to structure the management of your company in your estate plan, proactive planning is key as it prompts you to address important questions about your company’s future, paving the way to a smoother transition of your company’s management after you pass.

The Will
The next important document is your Will, which works in tandem with your Revocable Trust. Your Will is essentially a safety net to capture any assets you might have missed when transferring your interests to your Revocable Trust. Those “missed” assets would then be a part of your probate estate. Such Wills are typically referred to as “Pourover Wills” because they direct that the assets pour over into the Revocable Trust when the probate is complete. That way the estate plan is centralized under the Revocable Trust. Moreover, founders with minor children need a Will to choose a guardian. This ensures your minor children are cared for by someone you trust if you are unable to do so yourself.

If you do not create a valid Will or Revocable Trust, default state laws called “intestacy” will govern at your death. Your assets will be split among family members, which may mean that multiple people will own interests in your business, which in turn could mean a dispersal of control. Some family members may be at odds with each other over how the business is managed or who is in control, which can lead to ineffective management or even a company deadlock requiring court intervention. Simple planning could avoid this outcome and ensure your wishes are fulfilled.

Power of Attorney
The next document in the core estate plan is the Power of Attorney, which enables your designated agent to manage your finances and, depending on the facts, potentially even your company in the event you are unable to do so. This ensures your business continues to function seamlessly in your absence or incapacity, minimizing disruption and maintaining control. The Power of Attorney is only effective during your lifetime and any authority to act under it ceases at death.

The Advance Health Care Directive
The final and perhaps most personal document in your core estate plan is your Advance Health Care Directive. (While the name of the document may vary from state to state, the purpose is the same.) The Advance Health Care Directive empowers you to maintain control over your medical care in the event you are incapacitated and cannot express your wishes directly. The agent named in your Advance Health Care Directive will make important medical decisions on your behalf with the instructions provided in the document.