OK, you’re going to live forever.
At least, you feel like that. You’re in your mid-thirties, you landscape for four days in a row without sleep and maybe even without eating. You’re invincible.
But what if you’re wrong?
What if something unfortunate happens? What if you become incapacitated or you get sick for weeks or months?
Worse yet, what if you die? Yes, you bought life insurance so the wife and kids can bury you, and maybe have some money left over to make a few years’ mortgage payments. But what happens when you die – the day it happens, the day after and the day after that?
Some companies have in place a binder some affectionately refer to as “the death book.” It's a depressing tought, but a necessary evil. What this becomes is an instructional manual for what must be done upon the death of the owner of the company.
Body’s not even cold.
Let’s take a look at what happens if the owner of the company suddenly passes on.
People find out about it, usually by reading about it or getting a phone call from someone. If you have a line of credit or any other substantial indebtedness to any financial institution, when they read or learn of this they will grieve – for about 10 minutes.
Then, the first thought will be, “How much are we owed, and how is it collateralized?” If it is a borrowing base line of credit it is secured by valid receivables. If you die, those receivables become immediately suspect. While all would like to believe those who owe the company money will immediately pay up in full, you need to realize that is not reality. Most will be reluctant to pay the company until they confirm the business will continue to operate. The bank knows this, and will take steps to protect its money.
If the loan is not backed by receivables but by a personal guarantee, the bank will want to know its collateral is secure (and they can get their hands on it if necessary). The bank is a business and emotion will not come into play. It may not immediately call the loan, but it will want assurances that all is well.
I know of an instance where a well-known snow contractor owner was going off to climb Mt. Everest. Once his bank found out they insisted on a life insurance policy naming the bank as beneficiary for the amount owed to them. And, if he did not obtain the necessary coverage, they were not going to stop him from going, but would call his loans prior to his departure. It’s business.
Customers will find out about the owner's demise much quicker than anyone might believe. They, too, will grieve, for a much longer period of time. Probably 15 minutes. If it is spring, it might be 12 minutes. Then, the thoughts will turn to “Will we be taken care of today?” Customers need to be open for business regardless of whether or not you are residing at your home or in a box.
The worst-case scenario is your customer is advised of your demise by an erstwhile competitor who “just wants to help” the customer work his way through a bad situation. They want to make sure your customer is properly serviced while your company struggles, finding its way after the loss of the one person who can lead the company. Oh, and by the way, his company will care for their site in your absence so their area will be presentable tomorrow and the day after, and the day after that. It’s just business.
The employees will grieve too. Probably for a half an hour, maybe an hour. Then, they will begin to wonder if the company will continue to operate or maybe they should look for a job now – just in case.
So what's inside this death book? Page one lists who your executive assistant needs to call today. It contains the name and phone number of the contact person at the bank and all the relative account numbers. Someone from the company should be the one to deliver the bad news, along with assurances that a plan is in place for the continuation of the business, also assuring the powers-that-be that their interest is secure and viable.
The next calls are to the top 10 or 20 customers. Each, in turn, is advised of the unfortunate news of your demise along with assurances that Mr. Smith is in charge, will be on the job in the next few hours overseeing all operations are working smoothly. All of your customer locations will be serviced in the same manner it was yesterday.
The next few calls are also important. They are to your suppliers, especially those who might be owed money. The company will need credit and material to continue to operate. The suppliers and vendors need assurances the company is viable and will continue to operate just the same as it has been. The banks are on board, customers have been advised. All is under control.
Then the employees need to know what is on the horizon. They, too, need assurances things will continue on as they have been. Should these important assets begin to jump ship and the company doesn’t have enough qualified employees to carry out the tasks necessary to continue to generate revenue for the company, the whole thing begins to crumble.
Too many owners don’t plan for a worst case scenario. They obtain insurance to cover accidents, liability claims, fire and theft. They inventory trucks, trailers, fertilizers and trimmers. They have tailgate safety meetings and planning sessions for operations. They secure software to streamline billing and communications. However, planning for untimely death is something that should be done, needs to be done and must be done.
Tomorrow, or the next day, or today.
John Allin is a veteran snow contractor, consultant, author and educator based in Erie, Pa.
Death and Taxes
Successful owners of family businesses know that it’s never too early to start planning for the inevitable transfer of ownership.
First things first: You will likely need an attorney who is familiar with your business and the laws concerning transferring business assets. It is highly recommended that you consult legal counsel concerning this matter because tax laws are constantly changing.
Key terminology of estate planning
Will. A legal document that indicates how to distribute your property after your death. In the event that a person dies without a will, the state of their last residence and its probate courts will determine what happens to that person’s estate.
Estate tax. A federal tax on your right to transfer property at your death. Estate tax accounts for the fair market value of all assets to establish a person’s gross estate. After accounting for all deductions on the gross estate, the person’s taxable estate is combined with all lifetime taxable gifts to calculate your estate tax. This figure is reduced by the unified credit which presently makes only estates in surplus of $1 million taxable.
Gift tax. A federal tax on the transfer of property (including money) from one person to another while receiving nothing or less than full value in return. Gift tax applies to all property whether intended to be a gift or not. Gift tax is generally paid by the giver and is required for all gifts in surplus of the annual exclusion for each calendar year. The current annual exclusion for an individual is $13,000 per person, per year and $26,000 per person, per year for each married couple.
Probate. A legal process of administering a deceased person’s estate by filing their will, appraising property, paying all debts and distributing their remaining assets and property under the will. Probate is often costly and time-consuming. Many states have simplified probate for estates below a certain amount. The amount required for expedited probate varies among states but under these conditions the process is faster and less expensive.
As a business owner, you will face gift taxes if you give percentages of your business to dependents during your lifetime. If you leave your business to dependents in a will, they will face estate taxes upon your death. By transferring portions of your business ownership and value into trusts, you may be able to limit the amount of taxable property when passing on your business.
Common trust options include a living trust, marital deduction trust, unified credit/exemption equivalent trust and dynastic trust. For more insight on death and tax laws, visit www.SBA.com.