You’ve decided to start a business. It’s always been a dream of yours, and you believe you have a successful business model. You fully expect the company to be lucrative and provide an income for your family for years or even decades to come.
At the same time, you’ve been working on your estate planning. You’ve been setting aside assets for your family members, primarily focusing on your children. You want to ensure that they still receive a substantial inheritance and that their assets aren’t at risk. But if you take out business loans to start your new company, could the debt from that business put your children’s inheritance in jeopardy?
Setting up an LLC
This could indeed be a risk if you take out the loans in your own name. Many people do this when they start a side business. However, if you do so, you’re personally liable for paying back those loans.
If the business fails, you would still have to make the loan payments, which would then come out of your estate. If you pass away, your estate may need to pay off the debt, reducing the amount your children can inherit—even though your children wouldn’t directly inherit those loans or the financial liability themselves.
If you set up an LLC, however, liability for the loans is held only by the company itself. If the business fails, the company may have to liquidate its assets or declare bankruptcy, but your personal assets remain safe. This ensures your children will still receive their inheritance, even if the business doesn’t go as smoothly as you planned.
This is just one way to protect your family’s financial future. Be sure you understand exactly what legal steps to take when starting a business, drafting an estate plan and handling other important matters.