According to baseball legend Yogi Berra, “If you don’t know where you’re going, you’ll probably end up somewhere else.” Yogi’s one-liners often make me laugh, but they also make me think. His joke reminds me of the importance of having a plan when undertaking any endeavor that will impact our personal situations beyond the immediate here and now. That includes the estate planning process. Now, I’ll grant you that Yogi probably wasn’t thinking of estate planning when he offered this particular piece of wisdom. However, his words are absolutely spot on about the importance of planning for that day we won’t live to see. As important as having an estate plan is for all of us, it’s even more important for a small business owner. I think it’s no exaggeration to say that careful estate planning is an essential component of every small business owner’s overall business plan.
I think of a successful small business owner as someone who recognizes an opportunity to provide a needed product or service and then invests the time, dedication, and energy to develop and implement a plan to take advantage of that opportunity. I admire those who take thoughtful risks and harness their vision, business acumen, and energy to create, nurture, and guide a sustainable business enterprise. I’ve found that the small business owners I counsel are thoughtful, deliberate, and attentive to detail in how they go about the business of running their business; that is, they plan for the future. However, what I have also noticed from time to time in prudent and successful small business owners is the lack of a plan for their business when they die or are not available to run it.
It’s easy to see how even successful small business owners who are otherwise consummate planners might prefer to avoid estate planning when it comes to running their business. In at least one respect, these successful business owners are a lot like most people; that is, they are not used to (or inclined to) reflect on their own mortality. It is a subject, though not fraught with angst, that easily lends itself to deferring consideration to “another day.” However, the stubborn reality remains that absolutely none of us will make it out of this life alive. For the small business owner, Yogi’s sage advice deserves thought and action.
If you are a small business owner and have yet to begin the estate planning process, let me suggest some relatively easy first steps to get you started. First, locate and then review your company’s organizational and governance documents. If your business is incorporated, these would include corporate bylaws, shareholder agreements, and any other documents your attorneys drafted when you were starting up your business. If your business is a limited liability company or a partnership, you may want to refer to the company’s operating agreement or partnership agreement. Review these documents with the following questions in mind:
– How will your death (or permanent disability) affect the existence of the company?
– How will your successor be chosen, by whom and how much do you currently have in that decision?
– Will your death trigger a buy/sell arrangement whereby a co-owner, or the company itself, can buy out your share of the business, despite the wishes of your own relatives?
A brief review or discussion with your attorney of questions like these can prompt you to start thinking about your vision for the future of the company when you can no longer guide it. The next step might be to consider how you would like the business to operate in the event that your temporary disability or unavailability. A durable power of attorney will allow you (as the “principal”) to appoint another person (the “agent”) to make business decisions during your incapacity, while also allowing you to retain the ability to withdraw or revoke the POA when be ready. to regain control of the business.
The POA itself could serve as the genesis of a comprehensive succession plan, whereby you lay out a plan to reduce your own involvement in the business and allow others to take on greater management and decision-making responsibilities. An orderly transition plan can increase the company’s chances of survival after you are gone. And such a plan can help you “let go” of control and spend more effort advising those who will eventually run the business you created.
Ultimately, you’ll want to focus your planning on what you want to happen to the business when you’re dead. In this case, a well-designed trust agreement will allow you a great deal of flexibility, both in terms of retaining a degree of control while you are alive and identifying your intentions regarding the business after your death. The trust deed allows you to select those who will manage your declared intentions when you are away. You can, for example, provide for the sale and/or dissolution of the business over time, or provide for its eventual transfer to one or more family members. A trust agreement allows the owner great flexibility and for that reason makes it an extremely useful tool in the business owner’s succession plan.
The bottom line is that you, as a small business owner, have the ability to ensure that, with careful planning, the business you created will survive your passing. This is a process that can be approached gradually over time. However, given life’s uncertainties, the estate planning process must become a component of your overall business plan. There is no better time than the present to start this process. Don’t get carried away with this task for “another day”. None of us knows how much future we will have. Or, as Yogi says, “It may be getting late sooner than you thought.”
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