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Chapter 17: Estate Planning for Business Owners
The Law Gives You Lots of Options--but You Have to Use Them Well
Hanks company was doing well, but Hank wasnt. When he went to the doctor and found out that he had only weeks to live, he didnt have time to think about what would happen to the propane business hed built over 35 years. And like most entrepreneurs, hed been too busy getting his business going and growing during that time to worry about what would happen to it after he was gone. And now with the press of medical and funeral arrangements, hed never get the chance.
Hanks wife, Peggy, a teacher, knew nothing about the company and wasnt interested in taking it over, even if shed been able to, while his son Bobbys interests tended more toward stand-up comedy than propane accessories. While they tried to sell the operations, the business languished. The accountant kept up with the bills, but no one was hustling new accounts. As a result, when the family finally did sell the business, it was worth hardly anything at all.
Unfortunately, approximately 70% of family-owned businesses fail to make a successful transition into the second generation. About 90% fail to be successfully transferred to a third generation of family members. These statistics reveal both the difficulty of transferring from one generation to the next and the lack of planning for successorship.
Small business owners have a host of special needs. Who will take over the business after you die? Do the surviving spouse or the children get control of the stock? Which ones run the company, and which merely share in the profits? How shall the value of the business be passed to the next generation?
The principal issues your estate plan should address are: Do you want the business to continue after your death? If so, who will run the business after you die? Will your beneficiaries be capable of taking over the business--and will they even want to?
Do you want it sold at your death? If so, whats the best way to transfer ownership to the new owners?
Before you meet with your lawyer to plan your estate (and the legal issues involved here are so touchy that a lawyers expertise is essential), you should sit down with your beneficiaries and business partners to try to answer these and other critical questions, including how the business will be operated in the immediate aftermath of your death.