Estate Planners: How We Collaborate

As an estate planner, you develop an intimate knowledge of your clients’ wishes regarding how their estate is to be dispositioned upon their passing or incapacitation. However, if that estate includes a family business, there is a significant risk that the business may not be ready to be passed to a successor, and worse, there may be a conflict between what the estate plan requires and what the operating agreement and by-laws of the business legally require upon death or incapacitation of the owner. This is especially true if the business has multiple owners.

Three Scenarios—With Consequences!

Let’s consider three (of many!) possible scenarios. In the first, the successor to whom the business is bequeathed may not be ready to assume major responsibility for the business’s success. In the second scenario, the business structure may be such that it cannot operate effectively without the direct involvement of the deceased because they made all the operating decisions for decades. In the third scenario, your client may wish the estate passed to their children but the operating agreement contains buy-sell clauses that give the other partner(s) first right of refusal to acquire the deceased partner’s share.

In the first scenario, you’ll want to consider questions such as the following:

  • How prepared is your client’s successor to lead the business upon the owner’s passing?
  • What expertise, experience, skills, relationships, and overall readiness to assume leadership do they possess when the owner passes?
  • What are the qualities the successor needs to lead this business?
  • Are there gaps in the qualities needed and the qualities they possess?
  • If shortfalls, how can these qualities be developed?
  • In summary, how will your client ensure that the successor is ready to lead at the time of succession?

In the second scenario, the business has operated for possibly decades with the owner making all the decisions, for example, or managing all the client, customer, and vendor relationships. The reputation of the business may rest solely with the owner, and this is likely to disappear with a successor owner whom none of the business’s customers know or trust.

In the third scenario, a buy-sell agreement may give the surviving partner(s) the right to acquire the deceased partner’s share of the business. Further, the business may have taken out an insurance policy on each of the partners to ensure the acquisition is adequately funded—and can take place immediately! To avoid such legal issues, and their tax consequences, the estate plan and the business’s legal documents must all be in alignment.

How We Collaborate

Your expertise and focus are on memorializing your client’s wishes in a water-tight estate plan. However, the effective transition of your client’s business may require several years of planning and possibly business reorganization and legal restructuring. Development of a successful business exit plan (succession plan), to be implemented upon your client’s passing, may require expertise in business law, business valuation, tax law, insurance products, financial planning, wealth management, successor preparation, business structure, and overall exit planning and execution. The members of this exit planning team must be coordinated and must have as their singular purpose the support of and alignment with the estate plan you and your client develop together.

As the need arises, you may assemble and oversee the efforts of this team of experts to ensure the estate plan you provide your client will accomplish all that you and your client intend. Or, as a specialist in business exit planning, I can work in close collaboration with you to ensure that the issues and needs are identified, and the appropriate experts are assembled and participate as a team to support you and your client in developing an estate plan supported by the business’s succession plan.