Succession Planning and the New Year

Reflecting upon the events of 2019, I feel one of the most troubling was an event that occurred as a large project was coming to an end. As the project neared completion, one of the wealthy principals died unexpectedly.  Surprisingly, the decedent did not have a robust estate plan despite owning an array of operating businesses and high value real estate assets.  The one estate planning document in place, a self-authored will, left as many unanswered questions as it provided answers. Thus, administration and disposition of the decedent’s assets was left to attorneys working with surviving family members and a probate court judge. While the survivors and their attorneys tried hard to discern the intent of the decedent for the disposition of the assets there was – of course – no way to determine accurately if the decisions actually met the decedent’s desires.

Situations like this, with substantial wealth involved and the path of succession unclear, leave open the possibility of protracted litigation among stakeholders.  That is to say nothing of the stress imposed upon the surviving family members. The process fell far short of a desirable outcome.

At our firm, we often work with startup CEOs. One of the things we insist upon as they build their business is to plan their exit from that business simultaneously.  A part of the exit is to have in place provisions for the disposition of their estate in the event of an unexpected demise through death or disability.  While few of us relish the thought of planning for death (and its consequences) failure to do so places surviving family members in stressful and difficult circumstances.  Thoughtful business owners do not want such an outcome for their heirs.

Regrettably, situations like the one I encountered are not uncommon.  A few years ago, an investment banker friend of mine was selling a business for a client in his forties.  The client was selling one business to start another.  They reached an agreement with a buyer and completed due diligence in mid-November.  The seller insisted upon delaying the closing to the end of December thinking it would be administratively cleaner.  My friend urged him to complete the close immediately but the seller resisted.  Unexpectedly, the seller died on December 27th.  The buyer generously offered to close the transaction with the decedent’s father (the seller’s only heir) but at a reduced price as the seller’s continuation in the business had been a term of the original transaction.  The father, who had no experience in business, was confused by the offer and deliberated too long over the new terms.  Ultimately, the buyer withdrew, leaving the father with nothing.

I could site other experiences from our practice where problems arose from inadequate business succession plans but these two examples illustrate the problem.  These experiences demonstrate why business owners need and have a responsibility to be prepared for the unexpected with succession plans that handle the major issues that arise upon the disability or death of a business principal.

If you are a business owner who does not have a succession plan or an estate plan in place, we at CFOs2GO would be happy to help point you in the right direction to resolve these matters.

 


 

Doug Kennedy has extensive knowledge and hands-on experience in building robust foundations for family offices and serving the role of trusted advisor. He performs business advisory services and financial consulting work for a variety of  family-owned businesses from start-ups to mature successful enterprises. His experience has been spent in family dominated publicly owned companies, high net worth individuals, estate planning, wealth management, succession planning, leadership transition and risk management.

If you would like to speak with Doug, please use the comments section to make a request.

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