As entrepreneurs, we tend to be optimistic people – that is what I have found, for the most part, and what seems to be part of the recipe for success in starting and running a business. Unfortunately, being forever sunny and optimistic doesn’t help when disaster strikes – you have an accident and are either disabled, or, worse, succumb to your injuries. How do you deal with this?
There is the more obvious safety measure – which is having a will and power of attorney in place. But that doesn’t solve all of it – assuming, as is often the case, that the estate trustee of your will or the attorney don’t know anything about your business, how do they go about assuming control and either running it or selling it?
If your business is a small consulting business, for example, I have often recommended a ‘buddy’ system with someone else doing the same kind of work – an agreement that this other person will step in and manage your ongoing projects while your estate/attorney sorts things out.
If your business is more complicated, then more complicated instructions are necessary: who will operate the business? Should the business be shut down? Is there a market to sell the business as a whole or some assets within the business – and if so, how is that done? Does your estate trustee / attorney need to hire someone to replace you or can the business run on its own? All of these and others are issues which require thought and consideration. Often, this kind of planning doesn’t form part of the will, but is rather a memo or other written document providing guidance and instructions to those legally in charge of your affairs. Sometimes the instructions are important enough to be included in your will.
Then there is the more practical side of things – who is going to sign the cheques to pay staff and other bills? I had an entrepreneur client who fell suddenly and severely ill in the space of 3 days and never recovered. It was a nightmare to get someone recognized by the bank as a signor under these circumstances, and caused countless problems for day-to-day operations, as well as tremendous stress on the spouse. You should always consider having someone that you trust added as a signatory now, while you are capable, to cover the possibility of your suddenly being unable to sign cheques and other bank documents in the future.
These are just a few of the issues and suggestions around estate planning in connection with an operating business. Lawyers can help highlight the issues specific to your kind of business and help you plan for a sudden emergency that will hopefully not happen, but which those you trust are prepared for if something bad does happen.