By Ryan Velez
Even in the last 10 years, Black entrepreneurs have seen their hard work go towards closing the wealth gap. While there is still much more to do, data from the 2012 Census shows there are 27.6 million closely held small businesses in the U.S., of which 29% are majority-owned by ethnic minorities. In 2012, Black businesses brought in of $187.5 billion, reflecting a 34.5% increase in business ownership since 2007. Black Enterprise recently tackles this issue, and how Black people can leverage their work to create wealth for future generations.
One thing is clear: business ownership is a major driver not only of financial success but also legacy creation. In an annual industry intelligence report, State of the Affluent, it was reported that 33% of affluent, 74.5% of super affluent, and almost 90% of ultra-affluent households own a business. This fact combined with the high increase in Black businesses presents an unprecedented opportunity. Earl G. Graves Sr., founder of Black Enterprise: wrote in 2015:
“[W]e as African Americans have the capacity to pass on more wealth than any previous generation—wealth needed to continue to finance the progress and empowerment of future generations.” However, citing that nearly 70% of African Americans have no will or estate plan in place, Graves went on to say that, “this potential cannot be realized if we don’t collectively commit to estate planning.” One 2015 study showed that 64% of business owners over 50 have no estate plan in place, essentially putting their largest asset at risk.
So, where can Black business owners begin? Start by considering the basic values you are looking for before going in to meet with your tax and legal advisors. These include maintaining privacy and control regarding wealth, minimizing liability, and maximizing wealth during your lifetime for maximum legacy and social impact, should you wish.
In terms of the vehicles for coordinating your wealth planning, while a will is an obvious way to make sure that the distribution of your wealth is unambiguous, there are other things your will want to implement. These include dealing with power of attorney, should you have to deal with mental incapacity later in life, or using irrevocable trusts to take advantage of various tax exemptions.
If you are still planning on being active in business as late as possible, there are additional arrangements to consider. These include buy-sell agreements, a formal agreement to sell your interest in the business to a partner, family member, or third-party buyer. On the corporate level, this would be a shareholder’s agreement.