It can be difficult to consider what will happen to your
business and your family if you die unexpectedly. Without proper planning, you
could be leaving your family and/or key stakeholders in a huge mess. Proper
planning allows you to keep your business on the right path even after an
unexpected tragedy leaves you unable to continue running your business. Estate
plans focus on transferring assets upon an owner’s death. A successful estate
plan achieves three important personal goals:
1. Financial Security: For the decedent’s heirs.
2. The Right Person: The decedent (rather than the
state) chooses who receives his or her estate assets, including ownership of
the business.
3. Estate Tax Minimization: Reduces the government’s
bite, leaving more funds for the decedent’s heirs, when estate taxes are a
factor.
Estate planning can also be a tender topic for business
owners because they will occasionally need to decide which family member is the
most appropriate candidate to continue running the business after their death.
Families have been torn apart over poorly executed estate plans. Consider the
hypothetical example below.
Jonah Kaczmin sat nervously in his office. Until the day
before, he had been president of Kaczmin’s Electronics, one of the region’s
largest electronic component distributors. Now he was on his way out of a job
and felt he was a victim. Naturally, his first thought was to sue those
responsible for his misfortune. The targets of his wrath were his younger
sister and his mother. They had forced him out of the business, out of a job,
and felt he was a victim. After his father’s death, Jonah had received 49
percent of the stock in the family business. Another 49 percent share went to
his sister. The remaining two percent—the swing vote—was held by their mother.
Jonah’s father had brought him into the business early and
taught him well. After the founder’s death, Jonah assumed all responsibilities
for sales and became the key man in the business. His sister, Stella, handled
the bookkeeping and other administrative matters. Her husband managed the
customer service department.
Despite the economic slump that hit the region, the business
persevered under Jonah’s stewardship. It had a long-standing tradition of
service and good name identity because the elder Kaczmin had pioneered new
packaging and distribution methods.
Because of his dedication to the business, Jonah had not
spent much time nurturing family relationships. He was less a devoted son to
his mother than was his sister a devoted daughter. As their mother aged, she
became increasingly susceptible to the influences of her daughter. Family
friction continued. A confrontation was inevitable.
Jonah had always assumed that his superior abilities and
position as president and board chairman would enable him to win any family
showdown. He was wrong. At a special meeting of the board of directors, Jonah
was removed from his posts, fired as an employee, and given three months of
severance pay—after 25 years in the business.
Johah naturally felt victimized...but not so much by his
sister and mother as by his deceased father. By failing in the most important
remaining task in his life—to plan his estate and the future of the
business—the elder Kaczmin made his son an unintended victim.
Jonah’s unfavorable business transition experiences may have
been avoided had Jonah’s father asked and answered six critical questions.
1. How can I provide for an equitable distribution of my
estate among my children?
2. Who should control and eventually own the family
business?
3. How can I use my business to fuel the growth of my estate
outside of my business interests?
4. How do I provide for my family’s income needs, especially
those of my spouse and dependent children, after my death?
5. How can I help preserve my assets from the claims of
creditors during my lifetime and at my death?
6. How can I minimize estate taxes?
An owner’s thoughtful answers to these questions, followed
by appropriate implementation of a plan, may well prevent a similar experience
in your family and support a smoother business transition for all parties
involved.
Keep in mind that a well-crafted estate plan is only one key
element of a successful plan for you, your family, and your business. Don’t let
an unattended estate plan be the weak link in your overall plan.
We strive to help business owners identify and prioritize
their objectives with respect to their business, their employees, and their
family. If you are ready to talk about your goals for the future and get
insights into how you might achieve those goals, we’d be happy to sit down and
talk with you. Please feel free to contact us at your convenience.
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