Many business owners support the lifestyles of their families, employees, and others they care about by means of running a successful business. Usually, those business owners don’t anticipate dying or becoming incapacitated before they are ready to leave their businesses.
While an unexpected death or incapacitation may not be entirely in your control, there are ways to regain control over the uncontrollable. Let’s look at a fictional but representative scenario in which two business owners took different paths to addressing an unexpected problem with their ability to run the business.
Now what?
Mavis Burns and Miguel Sanchez were longtime business partners. Mavis was meticulous about documentation, while Miguel often improvised his planning based on the situation. For years, these equal but opposite approaches had brought their company great success and their families great wealth.
That was before Mavis and Miguel were both killed in a car crash while driving to close the largest deal in company history.
Mavis and Miguel had both purchased life insurance policies that would help support their business and their families in case something like this ever happened. When their families approached their advisor teams, they had vastly different experiences with accessing the money that they were due.
Mavis had worked closely with her advisor team to document every step of what her family and direct reports should do if she were unable to run the business. Her plans outlined exactly who should take over her business responsibilities, explained to her family precisely what her life insurance policy said, and provided instructions for how her family could access the funds from that policy.
Though Miguel told his family that he had a life insurance policy, he was the only one who knew where it was, what it said, and what steps his family should take if he were ever to die.
The difference it made
Having worked with Miguel her entire professional life, Mavis had anticipated that Miguel may not have been as meticulous in his documentation as she was. She took an extra step by including pertinent information about Miguel’s life insurance policy to help make it easier for Miguel’s family to receive funds from the policy.
However, Miguel didn’t have a plan for what would happen to his side of the business if he were ever to be removed from it unexpectedly, such as by an unforeseen death.
As a result, Mavis’ hand-picked business successors did not know what Miguel wanted to happen to his side of the business. Since their obligation was to the success of the business, they backfilled his role and reorganized his side of the business in ways that would allow the business to thrive.
Mavis’s estate continued to reap the benefits of the business’ success thanks to her meticulous documentation and formal, written plans regarding her stake in the business following her death.
Though Miguel’s family was able to eventually access life insurance funds, there was no documentation about what to do with his stake in the business. This meant that Miguel’s family received the life insurance funds and nothing more. This also meant that Miguel’s side of the business was now effectively run by Mavis’ hand-picked successors. And like Mavis, they did business differently than Miguel, which created change that Miguel’s team was not expecting.
What happened next
An unexpected event that results in a business owner’s death or permanent incapacitation is often outside of our control. What is in your control as a business owner is creating written documentation to address an unexpected event like death or incapacitation.
The benefits of having a documented plan can produce positive results for your business, family, and employees if something unexpected were to happen to you. On the other hand, the consequences of not having such documentation can leave your family, legacy, and wealth to the whims of someone whose goals, obligations, and needs may not align with your ideals.
In the case of Mavis and Miguel, Mavis’ team did the best they could with the information they had in light of the obligations they had to the business’ success. Unfortunately, what was best for the business after the death of Mavis and Miguel was not necessarily what was best for Miguel’s family and employees.
If Miguel had taken steps to document his wishes, as Mavis did, it may have been less difficult for his family and employees to navigate his untimely death.
Retaking control: Business Continuity Instructions
As a successful business owner, you likely have numerous people relying on you to maintain their lifestyles. You probably have goals and ambitions that others may not know about, such as providing financial security for your family despite whether you live or die.
A potentially powerful strategy for retaking control over the uncontrollable is through clear, written documentation.
A professional advisor team can help you determine what you need to do to protect your business, family, and employees in the face of an unexpected event that prevents you from running your business. This often takes the form of Business Continuity Instructions, which provide guidance to your advisors, business partners, family members, and employees about what to do if you were unable to run your business any longer.
As an example, Business Continuity Instructions may include guidance about the following important factors of your business ownership:
- Who takes charge in your absence
- How your family can access funds after an unexpected event such as your death or incapacitation
- What employees and managers can do to best position the business for success without you at the helm
- How family members and business successors can access important accounts, such as passwords and bank and credit info
In short, it’s typically better to have a plan and not need it than to need a plan and not have it.
We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional.
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The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
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Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
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