Procrastination!

A substantial challenge in business succession planning - which is in many ways estate planning/equalization of the estate including business assets for the closely held business owner, is procrastination.

So, 60 to 70% of people who die in the US, according to the most recent study I saw, do so without a Will. Thus a super-majority of individuals have decided that leaving assets using the statutes that their state legislature has drafted for them is sufficient. This in 2 of the 3 states I am admitted to practice, in means that the surviving spouse does not get everything even if the children are minors [except that the surviving spouse is typically appointed as guardian over the property for the minor children].

This psychology of the individual, as one of my favorite characters, Jeeves, is the driving force behind this procrastination. However, when you view this propensity in the context of business succession, it gets worse. Now you are asking someone to decide who gets what, when, but while they are still living. This inability to consider and decide on the terms of a transfer during life, when it involves ownership in a company they often are responsible for creating, makes the process difficult for the owner.

This in turn makes it tedious for the planner. Focusing on the issue that is in the forefront of the client's mind is the key. Is it retention of a key employee, where to find assets to equalize the estate of the non-employee child, or protecting the surviving spouse at the owner's death? Determining this issue, then isolating planning to deal with one issue at a time will benefit the owner, their family, and allow the attorney to get certain things accomplished for the client.

Not all children work in the business...,

Caveat: This is a very flexible practice area, it has to be, but ideas are discussed here, probably never all the solutions, and specific circumstances will change the discussion.

We often confront the issue of treating "different but equal" children equally, when one works in the business.

If the bulk of a business owners estate is the value of the business, it presents one set of challenges. If there is outside wealth, it is often more of a balance sheet/accounting issue on dividing assets, planning for the distribution and conditions imposed by the Testator/Settlor for use by a surviving spouse and heirs.

Different strategies can be employed, part of the fun in this practice, and the ideas do not work for everyone. In smaller companies, depending on profitability and relative assets of a son or unrelated "key man" in the company, insurability of the owner, and the end objectives, insurance to fund or partially pay for the stock at owner's death may allow division of the insurance "asset" to equalize, payment provisions for the company to fund out of earnings may work as the solution or part of the solution. Valuation, cash flow, needs of the various economic needs of the parties must be considered and a plan implemented.

Non-qualified, qualified retirement plans, bonus arrangements, etc. can be tailored to work together to meet their objectives. Willingness to do something is the key, and it must be coordinated with their estate plan, and it all must be evaluated in light of the "effectiveness" under current tax law of the various transfers.