Elder Law Report
Elder Law Report
Legacy Protection: How to Shield Your Business with Succession Planning
Are you prepared to protect your business's future no matter what life throws your way? Let Brenton Begley and Jane Dearwester guide you through the essentials of succession planning with wisdom and clarity. Together, we unlock the strategies to ensure your business thrives, addressing the need for robust corporate documents and the lifesaver that a durable power of attorney can be. Discover how to select an agent who can navigate your business with precision in your absence and understand the dire consequences of non-compliance with FINCEN's new requirements. This episode isn't just about planning; it's about fortifying your legacy against the unexpected.
Navigating the pitfalls of probate without a plan can be a business owner's worst nightmare. Don't let that be you. We dissect the advantages of early succession planning, from establishing an LLC to the wisdom of placing your business in a trust. Learn why meticulous documentation and adherence to corporate formalities aren't just good practice—they're your shield against personal liability and the disintegration of your life's work. Jane and I don't just scratch the surface; we provide a blueprint for safeguarding your business and its stakeholders, preparing you for a future where your vision continues to prosper, come what may.
All right. So this is the Elder Law Report. My name is Brenton Begley, attorney and partner with McIntyre Elder Law. I'm joined today by Jane Dearwester. We're talking about Businesses and business owners and what considerations you should have if you own any interest in the business. If you own any interest in the business and, by the way, it is you know the month of May.
Brenton Begley:So, as you may know, the month of May is Asian American and Pacific Islander Heritage Month, and one of the reasons why that is an important thing to bring up is because I think 45% of minority-owned businesses in North Carolina are Asian American owned. And you know, for anybody who owns a business, whether you're an immigrant, whether you are someone who was born in this country, you still have the same considerations. It's still the same type of planning, the same type of planning, you know. So one of the major issues I see when it comes to, you know, business ownership is you know you're running hard as a business owner and you're trying to grow your business, trying to earn a living for yourself, your family, and you know a lot of folks forget to pause and figure out what would happen with my business if I need long-term care, if I pass away what happens to the business?
Jane Dearwester:Yeah, or even if there's a temporary issue right where somebody gets in a car accident or has a heart attack and they're out for an extended period of time. These are things, of course, nobody wants to think about and are completely unpredictable. But in my experience what I see, particularly for small business owners in the past over the years, is everybody's very excited to start the business and they just want to go, but they don't want to take that pause at the beginning and do an operating agreement, do their those foundational corporate documents. They skip that part, and that part is so important.
Brenton Begley:Right, yeah, one of the things too you mentioned.
Brenton Begley:Yeah, if you get in a temporary situation car wreck, sickness, things like that you know if you're running a business and that business is tied to you, tied to your name, and you're the one with the authorization on the accounts, you're the one that can sign contracts, things like that.
Brenton Begley:You know you got to have a power of attorney named and under a general, durable power of attorney, you can give someone the authority to act on your behalf as if they were you for those business purposes, for legal purposes, financial generally speaking, but also for your business. You know a lot of folks don't understand that if you name a power of attorney and the power of attorney you know has the language that it needs that, yeah, you know your agent that you name can continue that business venture, whatever it is. So if I'm, you know, a contractor and I have, you know, a lot, of, a lot of different money coming in from, from, you know, customers, money I have to use to pay for materials, payroll to my employees, things like that, and I don't have the ability to sign those checks any longer, well, it would be necessary for me to have a power of attorney who could step in and continue to manage the business, manage the finances and even make major business decisions, if those were needed.
Jane Dearwester:Yeah, and I think that makes it shines a spotlight on the need to make sure you very purposefully and wisely choose who your agent is. If you're a small business owner, you know a lot of people in estate planning context will name their spouse as their agent. But maybe your spouse is not a savvy business person. For business purposes that is not the person that is going to be the best person to make business decisions if you're incapacitated or not able to make those decisions. So it is a little bit more involved to talk about naming those agents when those kind of powers of business decision making are on the table, when those kind of powers of business decision-making are on the table.
Brenton Begley:Yeah, correct, I mean you want someone who's sophisticated enough to make the decisions on your behalf. I mean, you know, and that applies to business owners or anyone that you're naming under power of attorney, you know, I say all the time to clients, you know, if who you're thinking about naming can't manage their own finances, you know right, Then it's probably not a good idea to name them. You want someone who can do the job and do it right.
Jane Dearwester:Absolutely.
Brenton Begley:Yeah, another key consideration is with business owners is if you have an entity set up, now there is a requirement that you a federal requirement that you make a report to what's known as the Financial Crimes Enforcement Network, which is a government agency referred to the acronym as FINCEN that's probably what a lot of people see it as but it's the Financial Crimes Enforcement Network and this year there was a law that was passed that requires any business owner, anyone that owns an entity to make that report within a year if it's a pre-existing business, meaning the business existed before the law came down. If you create a new business, you have even less time and there's a hefty fine if you don't comply with that requirement. So a lot of folks need to know that that's not necessarily a planning thing, but it is one of those things that you do need to do to make sure that you don't get hit with that fine. But as far as planning goes, planning is incredibly important when it comes to business succession, like if you pass away what happens to your business.
Jane Dearwester:Yeah.
Brenton Begley:You know, one major risk that I see is if the business passes through probate.
Jane Dearwester:Right.
Brenton Begley:It can be a long and difficult, very bureaucratic process to go through A lot of red tape. Yeah.
Jane Dearwester:Not to mention, it puts the world on notice that your business is now an asset and can bring creditors out of the woodwork, can bring other parties who might have claims out of the woodwork.
Brenton Begley:Right, yeah, yeah.
Jane Dearwester:And two best to avoid for sure.
Brenton Begley:Exactly, and whoever you've named as your executor in your will would have to be the one that essentially runs that business, without some type of succession plan, and they would have to run that business until the business is distributed to the heirs. So if it's someone other than who is going to eventually get the business, you know you're putting the business in the hands of some third party and Lord knows what decisions they'll make. I mean, they have a duty. You know they have to make decisions.
Jane Dearwester:That's in the best interest of the state, however it might be, you know, if there's just not a savvy business person, yeah, and a lot of cases I think in that role someone may have to retain professionals, either business consultants, attorneys, et cetera, and again that's going to eat up money and resources within the estate. If they're not capable of doing it or want that additional professional advice, it's just, you know, running a tab, keeping that open tab running.
Brenton Begley:Right. So one good way to avoid that is to either have a business succession plan laid out in the operating agreement, if it's an LLC, or the bylaws of the corporation, if it's a corporation. Or another very simple way is to make sure that the business is in trust. Or another very simple way is to make sure that the business is in trust. You know, if you put that business in trust then the business would pass immediately to the beneficiaries under the trust. If that's, you know, if those are the terms that you put in the trust, you could say, hey, you know, I trust my trustee to carry on the business and I just want my beneficiaries to get an income from that business.
Jane Dearwester:And I just want my beneficiaries to get an income from that business. Yeah, and I've seen that with several clients lately and they have this huge sense of relief when they're coming in signing those documents and you can tell they're like, ok, I've got this set and they can really be very specific within the terms of the trust of how they want things to happen and again, that takes place, avoids probate and avoids kind of a lot of these other issues.
Brenton Begley:That's right and a lot of times businesses own a lot of assets.
Jane Dearwester:maybe a lot of personal assets are tied up in equipment, like when you're saying contractors, they own machines like big earth moving machines. Or we've had some clients who have like manufacturing equipment where the machinery is like six figure, like really you know big assets, not to mention real estate right, it was that can be you know, uh contested and obviously very uh high level, expensive assets.
Brenton Begley:Exactly so. Making sure that not only the business itself, like the venture, the operation, but the assets with the business, the operating income with the business, you know all passes to who you want to pass to in a timely and smooth fashion, is going to be the goal, and a good way to do that again is probably the best way to do it is to make sure that there is a trust in place.
Jane Dearwester:Yeah, and the flip side is again, like I said, what I've seen over the years is people get excited about starting the business but don't want to pause. Not only do they don't want to pause, they don't want to pay attorneys or business consultants or financial advisors to get the good advice on the front end, and then on the back end, they get hit with litigation which is exponentially more expensive than planning.
Brenton Begley:It's just that. Yeah, more planning up front always equals ease at the end. You know, it's just a. You can really leave a burden behind if you don't plan ahead. Um, in a lot of different ways you can leave a burden behind, whether it's just trying to figure out how to run the business or just going through even if you didn't have any creditors at all.
Jane Dearwester:Yeah, and it can lead ultimately to the lack of planning, can lead ultimately to a disillusion of the business. And then everything you've worked for to create your business and all your employees who are depending on it, everything folds because there was a lack of planning at the beginning. I don't think that's anyone's intention, but we'll see what happens.
Brenton Begley:You know, and your customers too. Customers too, they're going to suffer as well. So moral of the story is plan ahead. If you're a business owner, you have significant business dealings, you have a sole proprietorship, llc, corporation or own any interest in those, it is in your best interest to have some type of plan in place whether that is business succession agreement, whether that's a trust, and to make sure you have those foundational documents. You know your powers of attorney, your will, things like that. That's going to make sure that that business is not subject to undue liability if something were to, god forbid, happen.
Jane Dearwester:Yeah, okay, go ahead. I was going to say, following the corporate formalities, to ensure that you are not held personally liable for acts of the business, if you just set up a business but then never set up a business bank account, never have annual meetings. Again, you don't follow the corporate formalities Very common. At the end of the day, you, or even your estate, could be held personally liable. They could get to your personal assets.
Brenton Begley:That's right. Yeah, that's very important to ensure that, whatever type of entity you set up, that you're complying with those requirements, like if it's a C corporation, having meetings of the board members, taking minutes, things like that. Because if you ever get sued, you know they could pierce that corporate veil and whatever liability that the corporation has would be imputed to you personally. You don't want that to happen.
Jane Dearwester:Nobody wants that. That is so true.
Brenton Begley:Well, I think this is a pretty good, comprehensive you know overview of the importance of putting some type of planning in place If you're a business owner. I appreciate your time, jane, and if you have any questions about how to protect your assets whether it's business or any asset that you have or how to plan ahead, you can give us a call. Shelby office is 704-259-7040. If you want to visit any of the other offices or get any information, our website is mcelderlawcom, where we have the number for each one of our offices. We have three locations Charlotte, shelby and Hendersonville and we serve all 100 counties in the state of North Carolina. Thanks again.
Jane Dearwester:Thank you.
Brenton Begley:All right, see you, bye.