Kaufman Law: Will and Business Succession Perils

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Kaufman Law: Will and Business Succession Perils

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Kaufman Law: Will and Business Succession Perils

  1. 1. Will and Business Succession Perils
  2. 2. <ul><li>Overview </li></ul><ul><li>Closely held businesses have an extraordinary failure rate: </li></ul><ul><li>70% do not survive to the second generation </li></ul><ul><ul><li>85% do not survive to the third generation </li></ul></ul><ul><ul><li>The average family owned business lasts only 24 years </li></ul></ul>
  3. 3. <ul><li>Overview </li></ul><ul><li>Why do so many businesses fail after the first generation? </li></ul><ul><li>Failure to address basic issues of ownership succession planning and estate planning </li></ul><ul><ul><li>Failure to develop a comprehensive strategic vision </li></ul></ul><ul><ul><ul><ul><ul><li>Ownership </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Control </li></ul></ul></ul><ul><ul><ul><li>Management </li></ul></ul></ul>
  4. 4. <ul><li>Wealth Protection Techniques Can Be Challenged </li></ul><ul><li>Five techniques for business succession planning </li></ul><ul><ul><li>Buy/Sell Agreements </li></ul></ul><ul><ul><li>Family Limited Partnerships </li></ul></ul><ul><ul><li>S Corp Recapitalizations </li></ul></ul><ul><ul><li>Employee Stock Ownership Plans </li></ul></ul><ul><ul><li>Intentionally Defective Grantor Trusts </li></ul></ul><ul><ul><li>All Five Can Be Successfully Challenged If Not Done Right </li></ul></ul>
  5. 5. <ul><li>The Legal System is Expensive </li></ul><ul><li>The cost to defend a frivolous suit can easily run $50,000 to $100,000. </li></ul><ul><li>The Cost of an Appeal can be another $40,000 or more. </li></ul><ul><li>Are you willing to kiss that $100,000 goodbye? (You don’t get it back, even if you win.) </li></ul><ul><li>A juror has a 50/50 chance of detecting a lie. </li></ul>
  6. 6. <ul><li>Succession Nightmares </li></ul><ul><li>Does your client want to be in business with their partner’s spouse and children? </li></ul><ul><li>The cost to defend a frivolous suit can easily run $50,000 to $100,000. </li></ul><ul><li>If your client is incapacitated, can their business survive? </li></ul><ul><li>Can your clients’ family get a fair price for their share from the partner? </li></ul><ul><li>At any given time, 40% of U.S. businesses are facing immediate transfer of ownership issues. </li></ul>
  7. 7. <ul><li>Attack by Predators </li></ul><ul><li>Are all of your clients’ beneficiaries financially savvy? </li></ul><ul><li>Would your clients’ assets be a nice prize if their balance sheet were publicly available? </li></ul><ul><li>Are all of your clients’ children in solid marriages? </li></ul><ul><li>Will your client or your client’s spouse ever become elderly and dependent upon others for financial management? </li></ul>
  8. 8. <ul><li>Divided You Stand, United You Fall </li></ul><ul><li>If your client owns everything in one trust, one company, or in their or their spouse’s own name, they can lose everything in one lawsuit. </li></ul><ul><li>If your client owns assets in separate entities, only one is threatened by one lawsuit. </li></ul><ul><li>If your client is personally sued, multiple entities can keep creditors from controlling their assets for their benefit. </li></ul>
  9. 9. <ul><li>Will Contests </li></ul>
  10. 10. <ul><li>Will Contests </li></ul><ul><li>What makes a piece of paper a will? </li></ul><ul><li>Signed </li></ul><ul><li>2 witnesses are there at time of signature </li></ul><ul><li>Testator acknowledged the will at time of signature </li></ul><ul><li>Two witnesses sign will when testator does </li></ul>
  11. 11. <ul><li>Will Contests </li></ul><ul><li>Did Uncle Meleager really know that he was writing a will? </li></ul><ul><li> Testamentary Capacity </li></ul><ul><li>Undue Influence </li></ul><ul><li>Fraud </li></ul>
  12. 12. <ul><li>Will Contests </li></ul><ul><li>Testamentary Capacity </li></ul><ul><li>- Initial burden on proponent </li></ul><ul><li>- Then swings to challenger </li></ul><ul><li>- NOT same as legal capacity as you normally think of it </li></ul><ul><li>- Understand what he is doing when making will (giving away his stuff when he dies) </li></ul><ul><li>- Has idea of what he owns and what he’s doing with it </li></ul><ul><li>- Knows who he might give stuff to </li></ul><ul><li>- Able to decide who gets what* </li></ul><ul><li>- MD different from VA in this one - MD requires that decedent be able to “appreciate the relative claims” of heirs and/or potential heirs </li></ul><ul><li>- “Insane delusion” </li></ul><ul><li>- VA & MD differ somewhat </li></ul>
  13. 13. <ul><li>Will Contests </li></ul><ul><li>Undue influence </li></ul><ul><li>- Someone tries to get decedent to do something he wouldn’t normally do </li></ul><ul><li>- Irresistible pressure </li></ul><ul><li>- Decedent does something he wouldn’t normally do </li></ul><ul><li>- 3 part test </li></ul><ul><li>- Enfeebled in mind at time of execution </li></ul><ul><li>- Note VERY UNCERTAIN concept in VA & MD </li></ul><ul><li>- Requisite activity </li></ul><ul><li>- Contrary intention expressed </li></ul>
  14. 14. <ul><li>Will Contests </li></ul><ul><li>Fraud </li></ul><ul><li>She was deceived </li></ul><ul><li>Decedent relied on deception </li></ul><ul><li>Decedent did something different as a result </li></ul>
  15. 15. <ul><li>Will Contests </li></ul><ul><li>Revocation </li></ul><ul><li>- Must be explicit </li></ul><ul><li>- Can be act or statement </li></ul><ul><li>- If can’t find will it is presumed to be destroyed </li></ul><ul><li>- Shift of BoProof </li></ul>
  16. 16. <ul><li>Will Contests </li></ul><ul><li>Scenarios </li></ul><ul><li>Uncle Meleager & The Missing Will </li></ul><ul><li>Uncle Meleager is a mischievous </li></ul><ul><li>old man who hides the will </li></ul>
  17. 17. <ul><li>Will Contests </li></ul><ul><li>Scenarios </li></ul><ul><li>The Dawson Pedigree </li></ul><ul><li>Old Lady Dawson does not want a will </li></ul><ul><li>believing that her caretaker 2nd cousin </li></ul><ul><li>twice removed will inherit by statue. </li></ul><ul><li>But the law changes. </li></ul>
  18. 18. <ul><li>Will Contests </li></ul><ul><li>Scenarios </li></ul><ul><li>The Portuguese Aunt </li></ul><ul><li>The Portuguese Aunt is old and suddenly disinherits her caretaker niece. </li></ul>
  19. 19. <ul><li>Will Contests </li></ul><ul><li>Scenarios </li></ul><ul><li>The Case of the Stained Book </li></ul><ul><li>In the stained book a new will is substituted for an old one. </li></ul>
  20. 20. <ul><li>Will Contests </li></ul><ul><li>Scenarios </li></ul><ul><li>An Uncommon Inheritance </li></ul><ul><li>The Uncommon Inheritance is a treasure hunt with the winner inheriting it all. </li></ul>
  21. 21. <ul><li>Thank You </li></ul><ul><li>If you would like a FREE consultation for your clients, please complete the information sheet. </li></ul><ul><li>Be sure to get all handouts before you go. </li></ul>

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