Why don’t women understand the need and importance of estate planning? It happens at least once a week. A woman comes to my office because some matter of urgency has triggered the “fear factor” and “forced” them to consult with an estate planning or asset protection attorney. What she often learns in that first consultation is that the circumstances that “forced” her to seek out the consultation is the least of her worries.
An article in Forbes.com yesterday, “The Shrinking Violets of Estate Planning,” could not possibly be more on point. Women just seem to think their husbands will take care of these things. It just doesn’t happen that way, at least not in most cases.
A recent encounter with a new client is not unusual.
The new client is a married woman in her late 30s. She has two young adult children from her first marriage and two young children from her second marriage. She owns 50% of a business recently appraised for several million dollars. The event that “forced” her into consulting with an estate planning/asset protection attorney was a dispute with her business partner.
It turns out that she is in the midst of a divorce with her current husband. A divorce that has been lingering because both spouses have their own successful businesses and they are too busy to focus on the divorce proceeding, even though they have been separated for over a year.
This new client has no will or trust in place. Let me say that again: This new client has no will or trust in place. A 37 year old widowed remarried woman – in the midst of a divorce, with children from both marriages, a multi-million dollar business, an estate subject to estate taxation, and a business partner who is causing problems in the operation of her successful business – has no will in place!
Why? See Deborah Jacobs article: “The Shrinking Violets of Estate Planning.”
As we discussed her situation, this client began to realize that the dispute with her business partner was indeed the least of her worries, not to minimize the importance of dealing with her business partner to eliminate the threat to the continuity of the business itself.
She had no idea of the possible consequences of her not having a will or trust in place. There were many in this case.
First, she didn’t realize that upon her death, without a will, her ownership interest in the business would be divided under the Florida law of intestacy as follows: 1/2 to her estranged husband, and 1/2 to be divided equally among her four children. All of her other assets would be divided similarly.
She acknowledged that her modest life insurance (not nearly enough to properly provide for her minor children’s needs upon her death, and not enough to provide the liquidity she will need for estate taxes and other costs of administering her estate) was payable upon her death to her estranged husband, and not to or for the benefit of her children.
With no will, there is no provision for who would be the guardian of her minor children. The prospect of her children going to her parents to raise them was quite chilling to her.
With no will or trust in place, the assets her minor children would inherit from her estate would be subject to a court supervised guardianship – public, subject to expenses of a guardian and an attorney for the guardian, subject to court approval for all expenditures, and all of the assets inherited by each child will be turned over to the child at age 18 to do with as he or she pleases! She suggested her business partner would also not like the possibility that the court appointed guardian would become a new partner in the business – not to mention that her young adult children and her estranged husband would also become partners in the business!
That’s because there is no shareholders buy-sell agreement in place with the business partner that provides for one shareholder to buyout the interest of a deceased or disabled shareholder, and provides for the disposition of the business if there is a disagreement among the shareholders (which is what prompted her visit to my office). There also have been no stock certificates issues by the corporation to reflect the respective ownership interest of the owners, no corporate minutes reflecting regular corporation actions and approvals of corporate actions – which could result is the disallowance by the IRS of various significant deductions from income taxation, piercing of the corporate veil by creditors, and losing the liability protection that the corporation is designed to provide.
Quite disturbing to her was the fact that her estranged husband would own half of her interest in the business, and is the designated beneficiary of the modest life insurance she did have, as well as her retirement plan (which is not so modest).
In the final analysis she realized that the problem with the business partner was, relatively speaking, a minor issue compared to the other issues we discussed.
Her action plan is to (1) review all of her beneficiary designations and change them to someone other than her estranged husband, (2) complete our information forms and return as soon as possible to design and implement a will that will identify who she want to care for her minor children, and a trust to protect her minor children at least through their college education and perhaps longer, (3) move her divorce through to its completion immediately, (4) meet with a life insurance agent as soon as possible to obtain enough life insurance coverage to ensure her minor chidlren are financially secure through their college educations regardless of what happens to her business (which likely won’t survive her death without a business continuity plan in place), (5) discuss with her business partner the possible terms for buying out the business partner, and if not successful, then to negotiate a shareholders buy-sell agreement with the partner, (6) establish a business continuity plan to provide for the continuation of the business in the event of her death or disability, and (7) update her corporate records to comply with legal IRS requirements, and finally issue share certificates for the business entity.
Interesting isn’t it? The event that motivated her to consult with an estate planning/asset protection attorney ended up 5th in priority on her action plan. She decided that ensuring that her children were properly cared for after her death was just a little more important that dealing with her business partner’s issues. And her husband of ten years (who is supposed to take care of such matters) will soon be her ex-husband!
What are your issues and concerns? Should you be consulting with an estate planning or asset protection attorney?
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