An estate plan ensures that your end-of-life wishes are honored. As a business owner, you have the responsibility and obligation both toward your family and your business to organize your legal affairs. On the personal side, this includes distribution of your personal and real property to your beneficiaries and the designation of persons (fiduciaries) who will carry out your wishes both while you are alive and after you die. On the business side, you need to ensure that the business may continue to function with a succession plan in place in case of your incapacity or death. If you do not make advance directives (Will, health care proxy, power of attorney) as well as corporate decisions (minutes, resolutions, notices) while you are alive and mentally well, someone else (usually, a judge called a Surrogate in New York State) will do so for you.
So, what may a small business owner do to put personal and business affairs in order?
1. Put your personal affairs in order.
A personal estate plan generally consists of three documents: 1) a Last Will and Testament
– valid immediately but effective only after your death, 2) a Power of Attorney – valid immediately and effective only while you are alive, and 3) a Health Care Proxy – valid immediately and effective only if you are unable to understand and communicate your health care wishes. A trust may be helpful, but is not for everyone. If you are of sound mind and memory, now is the time to execute all documents. All three documents are important and powerful - and may be revised any time afterwards during your lifetime.
A Last Will and Testament (Will) is a legal document which you execute and which provides strict guidelines as to how your estate will be managed and distributed after your death. You may opt to leave certain property to family or friends. It is up to You. You may also opt to disinherit family members (though not a legally married spouse) if you so choose. Under the Estates, Powers, and Trusts Law (EPTL) of New York State, Your Will must be signed by You and witnessed and signed by two people who are not interested in your estate. Your estate is managed and distributed pursuant to the law of intestacy when you die without a Will. So, if you die without a Will in New York State, New York State statutes and the Surrogate (Judge) of the Surrogate’s Court - and not You - decide how your estate is administered and distributed.
A power of attorney allows a designated person of Your choosing to make decisions for you (other than health care) during your lifetime. The agent You appoint under your Power of Attorney may access bank accounts, communicate with Medicare, the IRS, New York State, and tend to other financial matters your behalf, and take care of other important matters to assist you. The New York State Power of Attorney law was updated in June, 2021. If you previously executed a Power, you would be well advised to execute a new Power which conforms to the new law. The Power may be tailored to empower Your agent or successor agents to be of the most assistance to You. Unlike the Health Care Proxy, there is no requirement that You not be able to handle Your own matters to be effective. The Power of Attorney is effective as of the time You sign it.
A Health Care proxy gives your designated agent full authority to make health care decisions during your life in the event you cannot make the decisions for yourself. You provide the directions to your agent for circumstances when you cannot convey your own wishes, as well as end-of-life wishes. The healthcare proxy also discusses organ donation, your wishes as to burial or cremation, and other health care matters.
2. Put your business affairs in order.
Business Continuity and Resiliency Planning need to be at the top of your priority list.
Will your company be able to continue to provide the same level of service and maintain financial stability if you or incapacitated or die with no plans in place or successor leader poised to take over?
Business Succession Planning answers the following questions:
Who will take over your business upon your:
v Retirement
v Disability
v Death
v The time to put your plan into effect is NOW.
It is going to happen eventually, so shouldn’t it be on your terms?
It’s a 2-step dance. You need to plan for multiple contingencies:
• Preserve the continuation of your current business against threats (internally, externally, micro- or macro-perspective, change, etc.) (business continuity plan); and
• Ensure a stable future transition when you are no longer running the show (business succession plan).
3. Seek advisors to help you secure your legacy.
Consider hiring a business coach.
Have adequate business insurance (all types, including liability and contents) in place.
Develop a good working relationship with your business banker, bank branch manager, or investment banker.
Build a strong connection with a business attorney who can advise you in your business decisions.
How do you want to be remembered?
What would these people say about you (your reputation)?
v Family/friends
v Colleagues
v Employees
v Competitors
What do you want your legacy to be?
q Business continuity
q Philanthropy
q Something else?
4. Plan, Plan, Plan (and Plan some more)…
What is your business plan going forward?
• 1 month
• 3 months
• 1 year
• 5 years
You need multiple plans.
“If you don't know where you're going, any road will get you there.” (Attributed to Lewis Carroll)
“Eat a live frog first thing in the morning and nothing worse will happen to you the rest of the day.” (Attributed to Mark Twain/Samuel Clemens)
What is your business worth (and how can you increase its value)?
• What are your business’ assets? Intellectual property, Chattel, goodwill, client list, etc. Make a list of these assets and update the list periodically.
• Find a reputable, experienced business broker who has experience selling businesses in your field and get an appraisal of your business’ fair market value.
Would you sell your business? When? How much time do you have?
• To your business partner? (Buy-sell agreement in place?)
• To a senior employee? (Enough liquidity available?)
• To a family member? (Not always the logical move, often emotional)
• To a family member for no consideration (no money)? (How are you going to travel, play golf, donate to philanthropic institutions, and do all the things of which you dream once you are no longer running your business?)
Necessary Steps to Effectuate Business Succession:
ü Find your corporate kit, dust it off, and give it to your attorney, who will prepare the documents for you;
ü Execute (sign) corporate documents (Minutes, Resolutions, etc.) to name your successor as _______ (your title), e.g. President, etc.;
ü Execute corporate documents to transfer your shares in case of a qualifying event (Irrevocable Stock Power);
In summary, in addition to being a business owner, you are a husband/wife/significant
other/friend/Father/Mother/Sibling/Adult Child, etc. If you are 18 years or older, you need to put your personal affairs in order, too. Putting your business legal affairs in order does not take care of your personal matters.
W. Zehava Schechter, Esq. is a New York State attorney with more than 30 years’ experience in estate planning, estate administration, and estate litigation; real estate law; and contracts and business law. Her law practice is located on Long Island. Please send your comments to SchechterLaw@gmail.com.
No article is a substitute for competent legal advice. Please consult with the attorney of your choice concerning specific legal questions you may have.
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