Bob Arnett and Mark Wight,
BridgeTower Media Newswires
A business is like a family in many ways. The decision-makers or principals at the center of each family, business, or family business must have a love or concern for that entity, and must be able to communicate appropriately to be successful, happy and profitable.
If they want the best for all the principals involved, and if they care about the future, then they have made decisions about what happens in the event of a death, a bankruptcy, a retirement, or if the business sells. If the principal is the one who dies, there should already be some answers so someone else doesn’t have to make important decisions in the middle of all heck breaking loose.
It’s best if these decisions are made ahead of time.
We put decision-makers in three groups. There are those that do, those who don’t, and those who don’t have time, (or maybe think they won’t need to prepare). We all fit in one or more of these groups from time to time. However, responsibility kicks in and some of us do take action. We feel much better after we do.
Once you decide to move forward, it‘s much easier, and in the long run, much less expensive if you use professionals to help you through those decisions. Your insurance professional, your tax professional and your legal professional each brings a unique perspective and skill set to help insure the viability of your business should something catastrophic happen to you or one of your partners or even family members. The only professional that will cost you additional out of pocket is the attorney. You pay (or should pay) your accountant anyway, and you don’t pay your insurance guy out of your pocket. (He does get paid, but only when he’s successfully got you, your family and your business covered by insurance.)
It often seems that Idaho is the do-it-yourself capital of the world. Whether it is the cost of professional services to get transition planning or the desire to simply do it themselves, most people try to manage business transition planning (oh, and so many other things on their own). You know…. “I’ll handle it when I get around to it.” As a consequence, most have either completely avoided purchasing life insurance to help pay for the buy-sell, or they have made critical mistakes in the purchase of such a policy or naming the beneficiary or choosing the checking account from which to pay for the insurance. Yet, each of these decisions has critical legal and tax implications as well as impacts on your family.
If you have determined that you do not want to carry on business with the surviving spouse of your partner or his children or his creditors, you need to understand what your professional team can bring to the table in transition planning. Some areas of transition planning require a way to fund actions, and life insurance is usually the safer and more reliable vehicle. If a partner dies and his interest in the business has to be bought out, how will you raise that kind of money?
If you need cash down the road and want to use your savings, it will probably not be enough. Borrowing from a bank may not be possible, credit-wise, especially if you are in a bankruptcy situation or the business is losing money. If a partner wants to retire, how do you go about assessing the worth of the business to settle everything?
Have you ever said to yourself, “Darn, I wish I had thought about this before I started this whole thing,” or, “If I had known that ahead of time I would have done it differently?” We all have. But if you take a little time now to ask questions, you can be on your way to peace of mind and can focus 100 percent on your business and life.
As a caution, I heard about this guy whose business partner went through a divorce and the ex-wife ended up being a new partner in their business. That caused all kinds of troubles and it could have been avoided with a little action a long time ago. Talk about a hassle and expense!!
As an additional caution, in community property states, including Idaho, all earnings during marriage and all property acquired with those earnings are considered community property, and owned equally by husband and wife. A business transition plan must also take that into account!
You never know what is going to happen and if Murphy’s Law has anything to say about it, the worst will likely happen. So, now is the time to plan.
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Bob Arnett is a life insurance broker at Arnett Life Insurance Services and can be reached at 208-570-8390. Mark Wight is an attorney at Idaho Estate Planning and can be reached at 208-939-7658.
