Your Estate is Planned For, but is Your Business?
If you are a business owner and you have your estate planning done, congratulations! That is an important step. But if you stop there, some significant loose ends could come back to haunt your family. Even though it is Halloween this week, this trick will be no treat for your spouse or children.
Assuming you already have an estate plan, here are seven additional steps that all business owners can and should take to minimize problems with a business when death or incapacity occurs.
Buy-Sell Agreement. If there are other owners, a buy-sell agreement is crucial. This is the document that establishes how much you or your family will be paid for the business and on what terms. If a buy-sell agreement does not exist, there are no rules for how or if a buyout will occur. Buy-sell agreements aren’t just for death; disability is another triggering event that should be planned for. This is a time when you or your family are extremely vulnerable and sometimes the other owners won’t play nice.
Operating Agreement for LLCs. Even if your business has only one owner, an operating agreement is crucial. This is the document that the bank as well as other institutions and customers will look to in determining who can run your business when you cannot. This is the place where you can identify the successor Manager upon your death or incapacity. If you did not have your LLC set up by an attorney, there is a good chance that you don’t have an operating agreement. Your articles or certificate of organization is not the operating agreement.
Company Resolutions. A company resolution that authorizes a certain individual or individuals to act on your behalf when you cannot in regard to bank accounts or contracts is what the bank or other institutions will be looking for. Especially if there are no other signors on the account.
Co-Signors. If appropriate add one or more co-signors on all bank accounts and credit card accounts.
Power of Attorney. Make sure your power of attorney is more robust than the state standard form. A business owner’s power of attorney should include powers for the agent to operate the business when you cannot.
Emergency Business Continuity Instructions. If you aren’t around, this will be the playbook for your family to quickly gain control of the business operations. This playbook will be a quick reference to get your family up to speed. This should be reviewed and updated regularly. At least a couple of times each year. It will identify your trusted advisors, such as your accountant and attorney. It will identify the key players in the company you should meet with in the business and who can manage in your absence. It can identify the key customers and vendors who should be contacted. It can identify key agreements, such as the buy-sell agreement and important contracts that people should be aware of. It can identify bank accounts, lines of credit, and other financial information the family should be aware of. It can provide a list of potential purchasers who should be contacted about purchasing the business. It can identify insurance proceeds that may be available.
Money. If cash on hand may prove insufficient, you should consider key person insurance that can provide cash to operate the business and make payroll until it can be stabilized or sold.
The death or incapacity of a business owner always presents a challenging time. But your family, your employees, your customers, and your co-owners are relying on you to take the time to put things in place to minimize the upheaval that can otherwise occur. Unfortunately, we have seen up close what a lack of planning can do to the surviving spouse or children of a business owner who has not taken the above steps when incapacity or death comes. If you aren’t sure whether your business can survive your death or incapacity, please reach out to us for an audit of your existing planning to determine what steps are still needed.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.