Prince was a great artist and apparently was worth an estimated $300 million. An integral part of that came from his publishing company and his control of his intellectual properties. These assets comprised a small business. Perhaps at $300 million it was not a small business but certainly a private business. He was notorious for playing things close to the chest, and supposedly he had no will and no lawyer has come forward with documentation of a trust.
I now hear the song, “Trust” a little differently. It played in 1989’s “Batman” while Joker’s floats paraded through Gotham City, just before he tried to kill all its citizens.
I liked Prince. If you want to belt out one of his hits during your business’ karaoke outing, don’t invite me. If you’re an owner or executive, I would advise against mimicking one of his business decisions, or lack thereof, and draft a will or trust and exit strategy as part of your business plan.
As a friend likes to say, “we are all going to exit our business one day, its up to us to plan that exit” or to cast our fate to the wind. Estate planning becomes part of business planning when you own that business, and even more so when you have a small business and when you have partners or employees.
No matter how many kids — or spouses — you might have in your lifetime, think of your business as one of those as well. You wouldn’t leave your family empty-handed and directionless and you should employ the same attitude toward your business.
What is a Will?
You need a will. Everyone needs a will. If you don’t have a will, you have appointed the great state of New York, or wherever you happen to live, as your estate planner. A will is the document in which you specify what you have, who you want it to go out to, and the method to be applied in the management and distribution of an estate after your death. It’s the basic document on which an estate plan.
It should also be the cornerstone of your business plan and your succession plan for your business.
What is a Trust?
A trust is generally a fiduciary relationship in which you, the grantor or trustor, entrusts assets with another person, the grantee or trustee. The trustee then has the responsibility of holding title of the assets for the benefit of your beneficiaries. A trust can be applied to your business, to make sure it continues to operate without you.
In October, we discussed the consequences of an unqualified spouse taking over after a partner’s demise. If you are an owner or partner of a small business, you want a seamless transition in the event of your death. This can involve a couple of techniques.
Entrepreneurs and small businesses often get started by pooling capital from friends and family and other associates. Shared ownership in a business can lead to friction among members of the ownership group when major business issues inevitably arise, like your death. Buy-Sell Agreements set forth the termination mechanism for a shareholder’s interest in the event of death, disability, business deadlock or transfer. These are all critical questions to address up front in order to preserve and protect enterprise value.
An operating agreement is a contractual agreement binding to either a single member, or all members seeking to become part of the Limited Liability Company. Certain features should have been created at the outset of preparation for possible withdrawal, dissolution, and even a buyout of a departing or departed member from the LLC. This includes preparing for a partner’s death.
If you have no plan to disseminate your funds posthumously, it will likely wind up being run by statute. Skeletons may be released from your home closet as well as your office’s. The feds may look to the business to neutralize any personal debts you might have. This can hurt, cripple or kill the business, and possibly put your co-workers and employees out of work.
Now consider Prince’s estate. $300 million of homes, music, publishing, red corvettes, and probably all sorts of freaky stuff. Now, his one sister and several half-siblings need to rely on Minnesota law to get it all settled.
As Prince’s “Batman” song advises, “another world awaits us.” He should’ve considered that and drafted a will or trust.
Contact Brinen & Associates to discuss your estate planning needs, so that you don’t leave this world without ensuring your business will survive in it without you.