We've done a lot of talking about business succession planning, which deals with how you can continue your business and how the business would continue if you or a key person were no longer there. So we understand what we need to do to keep your business running.
We also understand how we can finance buyouts and how we can make sure that we have identified and mentored and talked to people to understand their interests and prioritize who are the key people that we would want to have in place. That's from the business succession plan side.
Estate planning deals with how to distribute your assets upon death. It's very important to understand that the estate plan and the business succession plan do work like hand in glove. Let's say there are three people who are involved in a business and you don't have a succession plan or you don't have an agreement specifying how you would buy out another person's interest upon that partner's demise.
Then, if that person has not written a will, their share is generally going to go to his wife and children. If he has written a will, then that person can designate who they would like to have their share and you have no say-so as a business owner. And that could basically impact whether or not you are able to continue to do business.
What you should have in place
Do you have the liquidity to buy out the interest of the person who has inherited your partner's share? Separate and apart from the business succession plan, it's important to either have a will or to have a trust so that you have a way of identifying your assets. And it's not only about identifying your assets but also about setting up a person who would be in charge of making that distribution.
That would be your executor, who would then designate who the recipients of your assets will be. Will it be a family member? Will it be your favorite charity? Will it be your pet frog? It's up to you because it's what you've earned. And you can basically make those decisions while you're alive so that a court will not have to make those decisions for you later.
So look how much smoother things would run if you have your business succession plan, and in the business succession plan and in your partnership agreement or however your entity is organized, you have provisions for dissolution. And maybe death is one of the events that would trigger dissolution.
What you should do
If death is the trigger that would dissolve your entity, what you can do on the planning side is to set up a buy sell agreement or a cross purchase. There are different ways of using insurance to finance your share. But you have to, first and foremost, have the business evaluated, and designate what shares or what percentage, each partner gets.
So when partner B dies, we won't have to deal with a wife or a child who wants to take the position of the loved one you've already resolved this matter with through the agreements that you set up in the business. You already have a financial tool for paying them off so that you can resume the business. Liquidity is assured, and it's a win-win situation for all.
It's about distributing your assets
Estate planning is about what to do to distribute your assets. When you make your estate plan, you can also think about long-range plans. Although estate planning pretty much deals with distribution of your assets, I always like to go the extra mile and deal with what happens if I become incapacitated either physically or mentally.
And that's where the statutory durable power of attorney is so important because if something should happen and you've already given someone that authority, they can continue to make decisions for you. However if you don't have that in place, then you have to invoke the court to go through a guardianship proceeding to have someone appointed.
Planning for the future
And so, we can take care of that within our planning since what we're talking about is planning for the future. It's about dealing with the unexpected because, although these events like incapacitation or death may be untimely, they are all expected.
We need to plan for those things so that those that we leave behind can be in a position to carry on and that everything goes on the way that you intended to. This event should not cause the business to fail or be disrupted with a lot of legal battles.
And we can plan these things up front so we can continue our business, and we can give to our loved ones or to those entities that have been the focus of our philanthropic efforts. But estate planning is necessary. If you don't plan for it, know that no planning is a bad plan, because it costs more money and more time, and it can be avoided.