At a Chicago Bar Association’s Solo/Small Firm Committee Meeting, I gave remarks on why estate planning is not a “basic” endeavor. A favorite example was a about Ms. Small Biz (Ms. SMB) who was married to Mr. Manager and had College-Age Children. It’s a favorite example because it identifies the issues contemporary families comprised of smallbiz owners may confront with respect to business planning, disability, death, and succession planning:
Ms. SMB is the sole proprietor of a small, lucrative, and growing graphic design firm. She has 3 employees in addition to herself, and her son works part time during the school-year and full-time during the summer. Her daughter, however, has no interest in the business.
But Ms. SMB has great vision for the business with a Pinterest page, a blog, and even a design auction website. Her husband is satisfied with his position as a midlevel manager with a software company. So the family is happy and enjoying its status.
For several years now, Ms. SMB has been consistently reaping the fruits of 10 years of hard work and wants to ensure that in the event of her disability or death, her family and business are safe and wrapped up in a neat little package. So how should the estate planning attorney assist?
First, we should assess the following: her stand-alone net worth; when the last time, if ever, was her business valued; what is the best legal entity for her business (at this point it should not be a sole proprietorship); who will run the business – digital assets and all – if she suffers a long-term illness; upon her death does she want the business sold or transferred to her son or her son and employees, or family and employees; who will wind the business up if she wants it sold; and if it is sold who gets what and in what form?
Undoubtedly, Ms. SMB will need a will or a trust. She will also need to consider the tax implications of the business entity, e.g., LLC, S-Corp, FLP, she decides on. And what about those digital assets; do we need to consult with an IP colleague? However, what is equally important is her decision about what to do with the business at her death. This decision will weigh heavily on her attorney’s counsel about choosing fiduciaries. For example, will that person understand her business, can he or she successfully execute a buy/sell agreement, and can he or she manage winding up the business?
Additionally, she wants to provide for both children equally. But giving half of the business’ financial interests to the daughter when the daughter has shown no interest may start a family feud between the siblings. Perhaps life insurance may help and may help in two ways. Once, the attorney ascertains the value of her business and, subsequently, her estate, life insurance can help lower the value of the estate for estate tax purposes and equalize the gifting between her two children.
This example shows that smallbiz owners have a several critical decisions and options to make and consider at the start and near the end of their involvement with their businesses. Also, because the decisions made in the beginning can significantly affect the options with respect to succession planning, new smallbiz owners should seek to create a business plan that isn’t a stand-alone plan, but one that also encompasses estate planning.
Ms. or Mr. Smallbiz & Family is just one of the faces of today’s family and the multiple faces and overlaps of today’s family shows why estate planning isn’t a “basic” area.