Business Owners: What is Your Succession Plan?

One of the best things about estate planning law, for the attorney, is meeting entrepreneurs and professionals. The same successful business owner who creates a lucrative enterprise is often the same person who has no backup plan in place for incapacity. This is best illustrated by examples.

Example 1:

A 50-year-old man owned a successful business. The man had no durable power of attorney, living trust, declaration of guardian or corporate document stating who could run his business if he lost his legal capacity. No one thinks this will happen to them. But it does happen. The man had no durable power of attorney, attorney, living trust, declaration of guardian or corporate document stating who could run his business if he lost his legal capacity. While the family, still in shock, scrambled to run the business, they found they had no authority to sign anything, to sell it or to negotiate anything at all. The only option was to seek a guardianship for the man through the courts, which took months. By then, so much value had been lost in the business that the ultimate sale price for it was much lower than he had hoped. 

Example 2:

Two business partners owned a successful import-export business. Each had been happily married to their respective spouses for decades, so each partner’s 50% share of the business was community property (so there were truly 4 owners of the business). The partners had no operating agreement or plan stating what would happen if one partner got divorced, became incapacitated or died. One partner died unexpectedly, and his will left everything to his spouse. The surviving partner was forced to run the business for years alongside the deceased spouse’s wife, making decisions with her even though she knew nothing about how to run the business. Finally, the surviving owner was able to buy her out at fair market value, but not after both parties had threatened litigation, hired lawyers and argued over valuation of the shares. This all was avoidable.

The bottom line: a business owner needs a plan in place. Incapacity is possible. Death is inevitable. Let’s document your wishes; you’ve worked hard to create the business.