Are your Family and Business Prepared if you Pass Away?
Imagine running a great company, being in perfect health, falling while on vacation, and then dying. How hard would this be on your family? Would your business survive? This scenario is not that far-fetched. Wang Jian, the chairman of HNA which is one of China’s largest conglomerates, died in France with his family while taking a picture according to ECNS.CN and SupChina. He was 57, and died after falling off a wall while having his photo taken. Even with medical attention, he was unable to recover. HNA stock price dropped almost 26% in the two weeks since his death.
How would your business do if you passed away?
Everyone dies eventually, but not everyone is prepared for that day. If you are running a business and you are the only employee what happens next? You should have a Will.
A Will or “Your Last Will and Testament.“: You have a Will drawn up while you are alive so that you can give instructions on how to distribute your property after you pass. Without a Will, you die intestate which means all of your property passes under your State’s intestacy laws. Many times that means your assets will be given to your spouse, or your children, or your next closest relatives. By having a will you have control over who gets your property and when.
You probably would not want to give an 18-year-old all of your worldly possessions. With a Will, you can alter this distribution timeline of all of your assets and provide protection for your loved ones from their creditors, divorce, or even their own mismanagement. With a will, you can even nominate guardians for your minor children. You will also nominate an Executor to take care of your estate once you pass. You will also have to consider whether you would like them to have to have a put up a pond to manage the estate. A bond is insurance for the estate in case the Executor makes mistakes that harm the estate. As a law firm, we see these types of issues more often than we like.
Is there a clear plan for the business to carry on in your absence?
There’s an old saying that if you fail to plan you plan to fail. Fram day one of any business you should be planning on having the business thrive, but also should take into account what happens if a founding member passes, chooses to withdraw for other reasons, or even becomes incapacitated. Individuals can have a Springing power of attorney for these types of situations.
A springing power of attorney is called this behause it “springs” into being if you become incapacitated. This is much different than a Durable power of attorney. A Durable power of attorney becomes effective as soon as the document is signed and continues to be effective if you are incapacitated.
Giving someone Power of Attorney is a very big deal. You can limit the powers or even grant powers so that the person you name has control over all your financial assets. That type of control means they could empty your bank account, give away your home, or mismanage your funds. Before signing a power of attorney you must be sure that the person you are giving this power to has your best interests in mind and are competent to manage your business. While having a Power of Attorney is a good idea and part of estate planning, you must think carefully about what kind is right for you. Speaking with an attorney to go over your options is a good idea when drafting a power of attorney or even a medical power of attorney.
Do you have a plan in place that allows your family to take the value from the business if your business cannot carry on without you?
Your founding documents for your business should have instructions on how to divide up the business if one of the founders passes or becomes incapacitated. No wants to think they are going to die in their prime, but it happens. If you do not have a plan, you should talk with a financial planner or an attorney to work on this type of structure for your business. Your family should not lose out on the value of your business that was created in your lifetime. This is another problem we witness more often than we like. Everyone thinks everyone is going to do what is right when someone dies, but unfortunately, many people are greedy, so it is better to prepare and plan than deal with the problems of business transition in a vacuum.
Are you thinking about retiring and would like to transition the business to the employees?
Business transition from the first generation of a business to a second generation sounds like it should be easy in a family owned business, but if more than two people are involved things can get complicated quickly. And, if you are trying to do stock transfers among employees from founders, this is a situation where experts are needed. Instead of winging it on your own, you should talk with people who work on these types of issues on a daily basis.
Are you thinking of selling your business outright to retire?
Once you are sure you want to retire or sell your business, you need to get a proper evaluation of your business. Many a solo legal practitioner have client lists that many other firms would love to buy. Valuing your firm at the right price before selling helps set you up for the retirement you deserve.
We can help you immediately.