Little in life can be as complicated as death, as people often leave a complicated trail of financial and business issues for survivors to navigate, sometimes without any guidance as to the wishes of the deceased.
Couple this with the fact that emotions tend to be running high anyway, and it can spell disaster for a business.
Crista Hogan, executive director of the Springfield Metropolitan Bar Association, has seen posthumous dramas play out many times in her role as a lawyer. But last year, she gained painful personal insight into the issues surrounding death as well.
Hogan’s husband, Tedd Hamaker, a veterinarian and owner of Galloway Village Veterinary Hospital, was diagnosed with cancer in January 2010 and died Aug. 30.
Between those two dates, he and Hogan tried to make plans for his business should he die.
“We had a little bit of time to prepare for some of the bigger issues,” Hogan said. “The first thing we did when Tedd got sick is make sure I had the authority to make decisions.”
That authority came in the form of a durable power of attorney. Hamaker also made Hogan an additional signer on checking accounts, ensuring her ability to tend to business matters when he couldn’t.
As a lawyer, Hogan can cite many things business owners need to think about when it comes to succession planning. The first: Planning – no matter how distasteful – is necessary.
“It’s something nobody wants to do – nobody wants to deal with mortality,” Hogan said.
She suggested instead that business owners form plans for temporary absences, which are fairly common. “If you can kind of take the mortality part out of it, it makes it just a little bit easier to put the pieces together,” she said.
The succession plan for architecture firm Bates & Associates Inc. was in place for four years prior to the March 22 death of owner Alan Bates, and that plan named partner Steve Warlick to succeed him at the company’s helm. Warlick said earlier this month that the firm’s succession plan was drawn up at the time he was named partner, dictating that if one of the partners died, the surviving partner would gain all shares of the deceased.
Succession and estate planning is essential for all business owners, said Gary Powell, partner at law firm Husch Blackwell LLP.
“I deal with people all the time where the business owner passed away unexpectedly or was disabled unexpectedly. Many times what happens is the business is sold, often at a deep discount simply because there’s no one there in place to manage that business, even on an interim basis,” said Powell, whose practice includes extensive work in succession planning for closely held and family businesses.
“Sometimes, in the worst case, the sale could be at levels approaching liquidation, because there’s no one to sustain it even while we market it.”
Hogan underscores the need to have all the pieces in place.
“I used to do estate planning and people would say, ‘My kids will work this out’ or ‘It will all fall into place.’ … Things can get really ugly when that one person who ties everything together is gone. You’re better off to leave as little to subjective interpretation as possible. Any time there’s any money involved, it’s a mess,” Hogan said.
And, Hogan pointed out, even when it’s all laid out — as it was in her case — there will still be plenty of difficult days.
“I was much better equipped probably than most because I am a lawyer and I am involved in business, specifically in real estate transactions in the past. I knew what to do with basic business and inheritance-type issues. But I can tell you, I was as inexperienced and vulnerable as I could possibly be when it came to this specific industry,” Hogan said.
She sold the clinic practice and facility to Dr. Jaime Rudd in March, citing state law under which an unlicensed survivor cannot own a veterinary clinic.
Having a succession plan in place, however, hasn’t cleared all the hurdles for one of the Ozarks’ best-known businessmen.
In October, due to John Q. Hammons health concerns, Jacquie Dowdy, who holds his power of attorney, was appointed CEO of John Q. Hammons Hotels Inc. In the months since, Hammons has been out of the public eye and under care at The Manor at Elfindale.
In November, Missouri Lt. Gov. Peter Kinder looked into Hammons care as the state’s official senior advocate, and said doctors recommended no visitations for Hammons. On March 4, several of his friends filed a petition to release Hammons from “involuntary seclusion” at Elfindale, and place him under the guardianship of Greene County Public Administrator David Yancey. A hearing was held in early April on pending guardianship issues, but no ruling has been made.
Business owners also must be mindful of tax issues and act accordingly to protect assets, said Richard Owensby, partner at Neale & Newman LLP.
Chief among the concerns is the estate tax, which is based on the total market value of one’s assets at the time of death.
“In my years as a lawyer, it has changed drastically,” Owensby said.
He points out that in 2009, the exemption was for $3.5 million. In 2010, there was no tax. In 2011, the exemption is $5 million, but the rules for 2010 can be applied. By 2013, only $1 million will be exempt.
The ever-shifting tax rules and the unpredictability of death make it extremely difficult to plan ahead, Owensby said, noting that life insurance is a must for all business owners. Having life insurance in place ensures estate taxes can be covered while ensuring the liquidity necessary for a business’ survival.
“Another important factor would be to eliminate probate,” Owensby said, noting that doing so not only saves money, it keeps sensitive information private.
A variety of trusts can be structured to meet the goals of a business owner. Some can reduce, postpone or eliminate estate taxes and protect assets from being paraded through probate. The key is finding a trusted lawyer to act as guide through the process.
Better to act now, rather than later, Hogan said.
“For the seven months and four days Tedd was ill, until his death, the priority of taking care of him eclipsed everything else. There just wasn’t the energy,” she said. “That’s why I think it’s so important to think about these things when you have a clear head, before it’s urgent.”[[In-content Ad]]
