Lawrence Nicholson | Estate planning, an indispensable survival tool for family business

Consider the following headlines:

‘Inside of ANS’ battle over late husband’s estate’;

‘Family fight over estate of ailing mother leaves two dead, one injured’;

‘Family of GS is locked in legal battle over his estate’; and

‘Jury reaches verdict in battle over AF’s estate’.

These are all stark reminders that the issue of ‘fighting over dead lef’ continues to plague people of all nations. It’s an issue that has continued to plague FOBS or family-owned businesses, locally and across the globe. However, it’s an issue that can be avoided, or minimised, and kept out of the glare of the public, with more forward planning.

The absence of estate planning has had a crippling effect on the sustainability of FOBs, and therefore merits a revisit in this space, even at the risk of being redundant. A good estate plan can save the owner, the business and the family members an enormous amount of time, money and stress.

Estate planning is the process of settling one’s legal affairs with respect to one’s assets, such as money, investments, house and cars. It’s a process that gives advance directives regarding the management and distribution of one’s personal property upon death or if one becomes incapacitated.

Usually this is laid out in one’s will and trusts. With respect to the business, estate planning does not necessarily address the continuation of the business, therefore estate planning is not always synonymous with business succession planning.

Business succession planning, in its purest form, is the process of identifying and preparing persons to lead and manage the business after the current owner passes on ownership or management, or both. This can take effect before or after death, while the estate plan usually comes into effect after death. While there are differences in approach, succession planning is usually treated as a component of an estate planning and not the other way around.

For the sole proprietor, your business assets are your personal property and will be managed and distributed as per the directives of your estate plan, and it can sometimes prove difficult to disaggregate estate planning from succession planning. This becomes complicated with FOBs where ownership extends beyond one person, and having to disaggregate personal and business assets, therefore making the disaggregation of the two an imperative.

In many cases, the conflation of estate planning and succession planning has led to family infighting and deep division in family, in Jamaica and across the globe, which, in many cases, spill over to the demise of both family and business.

The why of estate planning

Expressions such as ‘I am in good health’, or ‘I am young and full of energy, no time of estate planning’ or ‘having an estate plan or a will is an invitation for people to start a fight over what is not theirs’, are not uncommon among many business owners. For them, there seems to be a certainty to life that has eluded many.

While many seek to live in a bubble of certainty, only to realise that such a bubble does not exist, the uncertainties of life are constant reminders that people are not in control of all the variables in the equation called life. To account for these uncertainties, there is a long list of reasons and benefits for having an estate plan, including the following:

• Ensuring the wishes of the owner are carried out: This assurance reduces stress for all involved.

• The futureproofing of the business: Estate planning helps to prepare the business for continuity after death or if the owner becomes incapacitated. Succession planning in the absence of estate planning might not be enough because the former does not always lay out the ownership of assets in the business.

• Ensuring the owner’s assets go to the right beneficiaries: In the absence of an estate plan, the owners/business assets may go through the probate process, opening the door for deviations from what was intended.

• Contributes to minimising of legal fees: In the absence of a clear estate plan, beneficiaries and the business can be involved in a long legal battle, which can prove very costly.

• Helps to avoid or minimise family conflicts and disputes: Conflicts and disputes have led to death, serious injuries to family members and the demise of a closely knit family, which can have the effect of destroying the family business.

• Helps to maintain privacy: There are beneficiaries who would prefer to have a ‘private and quiet’ life. Public spats in the absence of an estate plan might not allow this and can even invite unwanted attention.

• Protects the assets and wealth of owner and business.

• Plan for the healthcare of the owner, whether after retirement or if the owner becomes incapacitated: The estate plan extends beyond the distribution of assets to beneficiaries. Owners need to put plans in place to address their needs while in retirement.

• Putting plans in place to address ‘other family’: There are cases where the family of the owner extends beyond the nuclear family, and needs to provide for the other or outside family members. This might even extend to having to plan for the upbringing of minor children and grandchildren. The business can be jeopardised in the absence of an estate plan that clearly outlines the management and distribution of assets.

The how of estate planning

There are different tools or methods used in preparing an estate plan for both individuals and businesses. The most basic of these is writing a will that states the wishes as to how the business and any other property should be distributed after death.

The details of a will, in this digital age, are ubiquitous and easily accessible. Other methods used include:

• Setting up trust accounts in the names of beneficiaries – usually for the sake of limiting estate taxes;

• Establishing a guardian for living dependants, especially for children and the vulnerable;

• Creating or updating beneficiaries on plans such as life insurance; and

• Issuing a durable power of attorney to direct all assets and investments.

Engaging the requisite skill set in having a professionally prepared estate plan will lessen the headache for both you and your beneficiaries. This, in all likelihood, will result in a reduction in the attendant expenses and taxes, and reduce the time taken for transfer of assets to your beneficiaries, in accordance with your wishes.

Many have made the decision to plan as per the declaration in Psalm 90:10 of the Bible: Our days may come to seventy years, or eighty, if our strength endures. This has led to many not having an estate plan in place before reaching the magical year of 70, or even taking the liberty of extending this magical mark to 80 years.

In this regard, procrastination has led to the demise of family and business. Many equate the start of the process of preparing an estate plan as the beginning of a death sentence and ‘running ahead of God’. For the sake of the family and the business, it’s time to put an end to this unfortunate mode of stupidity, and to get busy putting workable and sensible estate plans in place.

When should you begin this process? One school of thought is to have both your estate plan and your business succession plan in place as soon as you have established your business, with a strategy of revising or updating these on a yearly basis.

You are not being morbid in early engagement of the process. Both family and business will benefit from sensible and timely estate planning.

It can be difficult for business owners, who, having worked long and hard to build their businesses from scratch, to consider not being part of the day-to-day thrust of the businesses at some point. Those who fail to plan, might just be planning to fail.

In this regard, I agree with Suze Orman in stating that: “Estate planning is an important and everlasting gift you can give your family. And setting up a smooth inheritance isn’t as hard as you might think.”

Also, Napoleon Hill reminds all and sundry: “Don’t wait. The time will never be just right.”

More anon!

Lawrence Nicholson, PhD, is a senior lecturer at the Mona School of Business & Management, University of the West Indies, author of Understanding the Caribbean Enterprise: Insights from MSMEs and Family-Owned Businesses and a director of the RJRGLEANER Communications Group. Email: lawrence.n.08@gmail.com