How are your New Year’s resolutions coming along? If you own a business and one of your resolutions was to review your will and other estate planning documents, failure to keep this resolution can have a much more negative impact than not losing the ten pounds you resolve to lose every year.
If you are like many business owners, you do not have a formal business or business estate succession plan in place. Buy-sell agreements, stock purchase agreements, planned transfers of business interests to trusts for children, GRATS, use of insurance to provide equalization among your children who do not work in your business and other planning techniques are often ignored – or planned but not implemented – by many business owners. We often hear owners say, “Yes, I know this is important, but right now I need to run and grow the business.” Owners are often too busy, overwhelmed by the process or do not want to pay professional fees to put such a plan in place.
Most business owners do have wills, but often the wills were prepared when the business owner was first married and had small children. Wills that were written 20 years ago may not take into account the business owner’s current economic situation or the growth or status of the business. If you are a business owner and you have no business or estate succession plan in place and you have a will, on your passing, by default, your will controls – no matter how out-of-date it is. Over the year we have met with many clients with adult children who were surprised to learn that their will, which was drafted when their children were very young, still governs the disposition of their business interests on death. A particularly challenging situation is where the business owner has, for example, three children two of whom work in the business and one of whom does not, but the old will treats all children the same without regard to the different paths the children’s lives have taken.
To solve this issue, business owners need to review their wills and make sure they either put a business or estate succession in place or update the will to make sure it properly reflects how the business interests are to be transferred at death. There are many ways to provide equalization among siblings, but each situation is different and needs to reviewed, planned for and periodically reviewed and perhaps updated. For many business owners, reviewing their estate planning documents is a New Years’ Resolution that can’t be ignored.