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Estate planning: Take charge of the future and your business

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What if you could control the future? You can, by ensuring that your estate planning documents and your business succession documents reflect your needs and wants for your finances, your health and your business.

Of course, you should have a will and powers of attorney for finances and health Care. You should also have a HIPAA release so that those you want to, can have access to your health care information — such as calling the nurses’ station if you are hospitalized. And it’s a good idea to have a living will or a POLST — so that its clear on paper what you want. That’s sufficient for most people. But what else does a business owner need in their estate plan?

First of all – a succession plan. Who is going to take over your business when you no longer want to run it? If you have your own business, you may wish to keep the business within your family or sell it, before or after you pass away. It is very difficult for a surviving spouse to step in and run or sell your business without you being there to guide them.

You might decide to leave your business to the current co-owners by establishing an agreement that upon the death of any owner, their interest is purchased by the remaining owners. These buy-sell agreements make sure that you decide who succeeds you and that your family doesn’t unwittingly become responsible for your business at your death. Consider purchasing life insurance or establishing an irrevocable life insurance trust (ILIT) to cover a buy-sell agreement and provide necessary liquidity.

Creating a succession plan

Planned management succession in any business includes first: choosing, developing and training the next generation of leaders in your business. Control the future of your business by ensuring that those who come after you are well-chosen and well-trained. For ideas on training and developing those who will succeed you, look at www.davidmarquet.com or read his book, “Turn the Ship Around.”

David Marquet was the commander of the U.S. nuclear-powered submarine, the Santa Fe, and took it from the “worst” position in the Navy to “first” in terms of performance success, promotions and retention of capable personnel. His methods and principles, including adequate training for an individual’s role and an “eyes on hands off” management style, led to a successful ship command and are applicable to any business owner who is looking to have and to leave, a successful business for the future.

The second step in succession planning is to begin to responsibly delegate responsibility. While that sounds like one too many uses of the word “responsible”, I assure you that delegating is nothing to take lightly. Your employees and future owners must know what you expect when you are no longer in the office.

Are there policy and procedure manuals in place? Who can access the business records and accounts? Where are passwords and login information kept? What safeguards are in place to ensure financial stability? You will certainly agree that as hard as it is to run your business, it is a lot more difficult to teach someone else to run it the way you want it done and then supervise them to ensure that they do. Decrease your worry and control the future through training and responsible delegation.

Third, ensure retention of key employees through equitable compensation planning for management, family/non-family employees, and active/inactive shareholders. When and how are those who are taking over or remaining in place at their current jobs going to be compensated? Does your company have a plan for compensating long-term employees who might seem to have maxed out their earning capacity? How will you ensure they stay once you are no longer at the helm?

Lastly, think about the actual transfer of ownership. Will it happen during your lifetime or after? What day to day and long-term coordination is needed in your business if you remain the owner, but there are new managers in place? What information do you need from the new managers and how often? Is there anyone in your family who wants or doesn’t want to take over management and or ownership of your business? If you decide to transfer the business during your lifetime, you will be able to consult with the new owners.

Perhaps you can make a consulting arrangement, where you get paid for advising them and meanwhile you get to keep an eye on the store. Planning ahead and actually transferring the business during your lifetime, also avoids the circumstance where your family, at your passing, is forced to sell the business at a discounted price at a time when they are least able to manage.

You can control your future and the future of your business by making sure your estate planning and business succession documents reflect what you want. It is much easier and more predictable for your loved ones if you do the planning you want ahead of time. Don’t leave the future to chance.

 

Christina M. Davitt is of counsel to Ogden Murphy Wallace P.L.L.C. Her practice focuses on business matters in estate planning, as well as guardianship and probate. She is the oldest of ten children and loves to help people get organized.