What Yogi Berra Can Teach Small Business Owners About Estate Planning
According to baseball legend Yogi Berra, “If you don’t know where you’re going, you’ll probably end up somewhere else.” Yogi’s one liners often make me laugh, but they also make me think. Your joke reminds me of the importance of having a plan when participating in any effort that will impact our personal situations beyond the immediate here and now. That includes the estate planning process. Now, I grant you that Yogi was probably not thinking about estate planning when he offered this particular piece of wisdom. However, his words are absolutely correct as to the importance of planning that day that we will not live to see it. As important as having an estate plan is to all of us, it is even more important to a small business owner. I think it’s no exaggeration to say that careful estate planning is an essential component of every small business owner’s overall business plan.
I think of a successful small business owner as someone who recognizes the opportunity to provide a needed product or service, and then invests the time, dedication, and energy to develop and implement a plan for that opportunity. I admire thoughtful risk takers who harness their vision, business acumen, and moxie to create, nurture, and guide a sustainable business enterprise. I have found that the small business owners I advise are thoughtful, deliberate, and attentive to detail in the way they go about the work of running their businesses; that is, they plan for the future. However, what I have also noticed from time to time in prudent and successful small business owners is the lack of a plan for their business when they die or are not available to manage it.
It’s easy to understand how even successful small business owners who are otherwise accomplished planners might prefer to avoid estate planning when it comes to running their business. In at least one respect, these successful business owners are a lot like most people; that is, they are not used (or inclined) to reflect on their own mortality. It is a subject, even if it is not fraught with anguish, that easily lends itself to postponing consideration for “another day.” However, the stubborn reality remains that absolutely none of us will ever make it out of this life alive. For the small business owner, Yogi’s sage advice deserves some thought and action.
If you are a small business owner and have not yet started the estate planning process, let me suggest some relatively easy first steps to get started. First, locate and then review your company’s governance and organizational documents. If your business is incorporated, these would include your corporate bylaws, shareholder agreements, and any other documents your attorneys wrote when the business was starting. If your company is a limited liability company or partnership, you will want to refer to the company’s operating agreement or partnership agreement. Review these documents considering the following questions:
– How will your death (or permanent disability) affect the existence of the company?
– How will your successor be chosen, who and how much do you currently have in that decision?
– Will his death trigger a buy / sell arrangement whereby a co-owner, or the company itself, can buy his share in the business, despite the wishes of his own family members?
A brief review or discussion with your attorney of questions like these can prompt you to start thinking about your vision for the future of the business when you can no longer guide it. A next step might be to consider how you would like the business to operate in case your temporary incapacity or unavailability. A durable power of attorney will allow you (as the “principal”) to designate another person (the “agent”) to make business decisions during your disability, while allowing you to retain the ability to withdraw or revoke the POA when you are ready to do so. regain control of the business.
The POA itself could serve as the genesis of a comprehensive succession plan, whereby you lay out a plan to reduce your own involvement in the business and allow others to take on greater management and decision-making responsibilities. An orderly transition plan can increase your company’s chances of survival when you are away. And such a plan can help you “let go” of control and put more effort into mentoring those who will eventually run the business you created.
Ultimately, you want to focus your planning on what you want to happen to the business when you pass away. Here, a well-designed trust agreement will allow you a great deal of flexibility, both in terms of maintaining some degree of control while you are alive and identifying your intentions regarding the business after your death. The trust agreement allows you to select those who will manage your stated intentions when you are away. You can, for example, foresee the sale and / or dissolution of the business over time, or foresee its eventual transfer to one or more family members. A trust agreement allows the owner a great deal of flexibility and for that reason makes it an extremely useful tool in the business owner’s estate plan.
The bottom line is that you, as a small business owner, have the ability to ensure that, with careful planning, the business you created will survive your passing. This is a process that can be tackled gradually over time. However, given the uncertainties in life, the estate planning process should become a component of your overall business plan. There is no better time than the present to start this process. Don’t be fooled into putting off this task for “another day.” None of us know how much future we will have. Now, as Yogi says, “it may be getting late earlier than you thought.”
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