Will and Business Succession Perils

Overview

Closely held businesses have an extraordinary failure rate:

– 70% do not survive to the second generation

– 85% do not survive to the third generation

– The average family owned business lasts only 24 years

Overview

Why do so many businesses fail after the first generation?– Failure to address basic issues of ownership

succession planning and estate planning– Failure to develop a comprehensive strategic vision• Ownership• Control• Management

Wealth Protection Techniques Can Be Challenged

Five techniques for business succession planning– Buy/Sell Agreements

– Family Limited Partnerships

– S Corp Recapitalizations

– Employee Stock Ownership Plans

– Intentionally Defective Grantor Trusts

All Five Can Be Successfully Challenged If Not Done Right

The Legal System is Expensive

• The cost to defend a frivolous suit can easily run $50,000 to $100,000.

• The Cost of an Appeal can be another $40,000 or more.

• Are you willing to kiss that $100,000 goodbye? (You don’t get it back, even if you win.)

• A juror has a 50/50 chance of detecting a lie.

Succession Nightmares

• Does your client want to be in business with their partner’s spouse and children?

• The cost to defend a frivolous suit can easily run $50,000 to $100,000.

• If your client is incapacitated, can their business survive?

• Can your clients’ family get a fair price for their share from the partner?

• At any given time, 40% of U.S. businesses are facing immediate transfer of ownership issues.

Attack by Predators

• Are all of your clients’ beneficiaries financially savvy?

• Would your clients’ assets be a nice prize if their balance sheet were publicly available?

• Are all of your clients’ children in solid marriages?

• Will your client or your client’s spouse ever become elderly and dependent upon others for financial management?

Divided You Stand, United You Fall

• 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.

• If your client owns assets in separate entities, only one is threatened by one lawsuit.

• If your client is personally sued, multiple entities can keep creditors from controlling their assets for their benefit.

Will Contests

Will Contests

What makes a piece of paper a will?– Signed

– 2 witnesses are there at time of signature

– Testator acknowledged the will at time of signature

– Two witnesses sign will when testator does

Will Contests

Did Uncle Meleager really know that he was writing a will?• Testamentary Capacity

• Undue Influence

• Fraud

Will Contests

Testamentary Capacity- Initial burden on proponent

- Then swings to challenger

- NOT same as legal capacity as you normally think of it- Understand what he is doing when making will

(giving away his stuff when he dies)

- Has idea of what he owns and what he’s doing with it

- Knows who he might give stuff to

- Able to decide who gets what*

- MD different from VA in this one - MD requires that decedent be able to “appreciate the relative claims” of heirs and/or potential heirs

- “Insane delusion”- VA & MD differ somewhat

Will Contests

Undue influence

- Someone tries to get decedent to do something he wouldn’t normally do

- Irresistible pressure

- Decedent does something he wouldn’t normally do

- 3 part test

- Enfeebled in mind at time of execution

- Note VERY UNCERTAIN concept in VA & MD

- Requisite activity

- Contrary intention expressed

Will Contests

Fraud– She was deceived

– Decedent relied on deception

– Decedent did something different as a result

Will Contests

Revocation

- Must be explicit

- Can be act or statement

- If can’t find will it is presumed to be destroyed

- Shift of BoProof

Will Contests

Scenarios• Uncle Meleager & The Missing Will

Uncle Meleager is a mischievous

old man who hides the will

Will Contests

Scenarios• The Dawson Pedigree

Old Lady Dawson does not want a will

believing that her caretaker 2nd cousin

twice removed will inherit by statue.

But the law changes.

Will Contests

Scenarios• The Portuguese Aunt

The Portuguese Aunt is old and suddenly disinherits her caretaker niece.

Will Contests

Scenarios• The Case of the Stained Book

In the stained book a new will is substituted for an old one.

Will Contests

Scenarios• An Uncommon Inheritance

The Uncommon Inheritance is a treasure hunt with the winner inheriting it all.

Thank You

– If you would like a FREE consultation for your clients, please complete the information sheet.

– Be sure to get all handouts before you go.

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