Aging Parent Owns a Business? How to Plan for What Happens Next

Transcript of Interview: “Aging Parent’s Business”

Mike Barnes: [00:00:00] There are so many things we have to think about with our aging parents, but one of them is what if they own a business?

Kim Barnes: Today we’re bringing in Jeff Barnett who is an estate planning and business attorney with Barnett and Ludy Law Firm. Because Jeff, as we are thinking about all of the things that we’re thinking about as we care for our aging parents, if they own a business, that’s definitely something we need to be thinking about, and what should we be thinking about, first?

Jeff Barnett: Yeah. Whether or not it, you wanna sell the business and if it, and if, money is needed either for retirement for the business owner or, after death for the surviving spouse, that’s, one thing and, there’s lots of considerations though

Mike Barnes: Big thing to think about is when do you sell? If you do wanna sell, do we sell it now? Do we sell it later? Does it really matter?

Jeff Barnett: That’s a really good question. So, first you gotta think about whether to sell the business at all, and if so, whether to sell that business to, [00:01:00] whether it’s prior to the aging parent’s death or, to sell it after the aging parent dies. And if you’re selling, you gotta determine whether you’re gonna sell to family members or whether you’re gonna sell to someone on the outside, like to third parties or whatever, that have not been involved, or, maybe, to employees of the company, who are gonna take it over or to other business partners.and and then there’s whether to transfer it, after death to, to family, to business partners, to others via a will or a trust, or maybe some kind of a situation where the buy-sell agreement or the shareholder agreement between the, owners, mandates that it be sold, to the other partner or to the other partners. And, and so there’s, all those different things that go… that factor into that

Kim Barnes: What do you do in the situation where the family wants to take it over or wants to, continue the business, with one of the, with one of the family members? [00:02:00]

Jeff Barnett: Yeah, so, as long as it’s not prohibited by some kind of a buy-sell that mandates it, be sold to, to, somebody else, one of the other partners or something like that, then yeah, in, in your will or in your trust, you can, give it away to family members. a- and we talk about giving it away.It is possible, like I said earlier, to even sell to family members. Maybe, maybe, the money is needed for retirement or for the surviving spouse, so, so a family member’s actually gonna buy it from, from mom and dad or from Uncle Bob or whatever. so, so those… So if, if a family member’s gonna take it over, basically, a lot of times you’ll, wanna, bring them in, at, and, help with the transition and, and you’ll want to kind of bring them along in the business and that kind of thing

Mike Barnes: There are so many options involved, but is it all personal preference? Are there business [00:03:00] situations in the options that, we’re trying to decide?

Jeff Barnett: Yeah, sometimes it’s personal preference and sometimes the, it is something that’s mandated in a buy-sell agreement or, a shareholder agreement, that it has to be sold to other partners or whatever. But if there are no other partners involved, or if there’s no restriction, then it absolutely can be personal preference w- how you wanna do it

Kim Barnes: Whether you do it before Or after. Yeah And, a, and are

Jeff Barnett: Oh, right, right

Kim Barnes: And are there considerations, and I guess also does it depend on what the size of the, business? If they have, a solo business or just a few employees, or they have 50 employees or 100 employees, does it make a difference if the size of the business?

Jeff Barnett: I mean, it’s gonna make a difference in the complexity of the, transaction no matter what. And, and of course, the, even, just suddenly inheriting, a business that you haven’t been, a part of, if it’s something small, it may not, be that big a deal.If it’s something big, it might be a, [00:04:00] a, a something you have to hire somebody else to, just to e- even learn and know how to do. so there’s lots of considerations there so yeah

Mike Barnes: I- is there a, I’ll s- call it, a time crunch? Is there a certain time when we have to decide this? Like, like with my dad’s 88, he’s still alive, everything’s still good, but if he owned a business, should I have done something 10 years ago? Can I do it now? Do- can I wait? is there a timeframe that I need to get things done?

Jeff Barnett: it does depend on, like I said, all these various different factors. I mean, if the money is needed, for retirement or for a surviving spouse, then yeah, you if it’s for retirement, then you need to be talking about it be- before you start declining in health and before you I mean, obviously a, a sudden death, nobody can help that. But, but, if it’s, if [00:05:00] you’re going to, if you’re going to transfer the business after death or, at least, well, well into, your aging process, you may wanna bring someone along and, teach them the ropes and ch- and show them the ropes and, and help the transition.Because, some businesses, that’s, something too that I was thinking about a minute ago and didn’t get back to. But, some businesses are, very personal to the owner. The, there may be a, it’s askill set that the owner has that not just everybody has.Maybe the son doesn’t have it. Maybe the daughter doesn’t have it. Maybe somebody, nobody else in the family has it. and so, they either need to be, brought along, or they need to be taught, or the, it needs to be sold by some,to someone who, you know, who can actually take it over and do something with it, and then the money can be, used to, by the family to do something else

Kim Barnes: So when you’re thinking about, kind of the, I guess, first decisions are do we, do we- d- does somebody in the family want to take it [00:06:00] over? I guess that would be part of the consideration or has the capability to do it, and if so, does it need to be s- can it be given to the family member? Does it need to be sold to the family member? and at what point, how, involved should the parent be, and for how long? I guess, is that also part of the consideration, too? It’s even, we may be planning ahead, but Dad’s still running the business today, but we’re just trying to start planning ahead for, two years, five years, 10 years down the road.

Jeff Barnett: in, in the ideal situation, y- you either start talking about this, when they are in their younger, senior years. and you start planning this, and, you either sell it and then, use that money to travel and, and enjoy life. Or, you- if you’re bringing, somebody along, if you’re planning to give it to family or whatever, put… Bring that person into the business and, [00:07:00] and, teach them the ropes and everything, because that transition is important. i- if you have built a business and, whether it’s, even if it’s sort of smaller, and certainly if it’s large and more complicated, you, you’ve got customers, you’ve got vendors and, suppliers and relationships. And, if somebody’s coming in cold, they could f- completely flop, and they could completely ruin a, a, a wonderful business that’s been ongoing for, for many years or even decades. and, b- but just because there’s no relationships there, there’s n- there’s nothing, warm to, to, to make it an easy transition.So it’s definitely good to either… If, you’re selling it, then provide for a transition period as part of the sale, where the owner stays on for a while. or, if you’re giving it to family members, again, you wanna have that transition there. And, and the younger you start, the more sure they’re, [00:08:00] the, the, more sure the situation is that, that you’re going to be able to have that transition period. I mean, because if you wait too long, you could end up w- with some kind of, a head injury or Alzheimer’s or some kind of a physical impairment and you can’t teach, what you know. and, you can’t provide that transition assistance. So it’s definitely good to be thinking about these things early.

Mike Barnes: Mm-hmm. That’s a good tie-in to the next question that I have is, what are the biggest mistakes we can make as we’re preparing that as far as the, the family business is, whether it’s we’re keeping it or selling it, whatever it is, what are the biggest mistakes you’ve seen people make?

Jeff Barnett: Well, say, it’s kinda similar actually to the same thing that we talk about when talking about a will, or when we’re talking about a trust, or when we’re talking about, probate or what… just anything legal, you don’t know what you don’t know. And so, when you’re not an attorney, you’re not [00:09:00] going to know, all of the, the important things about, what need to go into a contract, for the sale of a business and, all of the closing documents and all of the other ancillary documents that become part of a sale transaction or a transition, a transfer transaction. and it’s very important to, to make sure that, those are in place, a- and that they’re done by a professional because i- again, what you don’t know what you don’t know, and if you don’t do it right, then it’s not going to be, what you want it to be. And, a- and, and you may end up having litigation later because, somebody, did something wrong.you may have, a, a, way for… You may, open up a way for someone to pierce the company veil and get behind to your personal assets or that kind of thing. you never know. there, there’s all different kinds of things that, that can go wrong if you, do. it, if, a DIY, business sale or a DIY will or a DIY, trust or anything like that,

Kim Barnes: Yeah. Well, and I guess too, [00:10:00] just also that the idea of, I would, I guess one of the big mistakes you can make too is just not having thought through this at all, and then something happens to the, person who owns the business, and nobody knows what the plan was or what the ideas were or who’s gonna take it over or what were you, what are we gonna do.

Mike Barnes: Yeah.

Jeff Barnett: that’s absolutely true. That’s w- it’s one of those things that, that you begin planning early. people should be talking about doing their wills when they’re in their 20s and 30s and 40s, and people should be talking about selling their businesses when they’re in their 50s and 60s. Not necessarily that they have to leave, they can, they can just be setting up the plan and, talking to a business broker, talking to a business, mergers and acquisitions attorney. That’s the, the, lingo the, for the type of attorney that, you know, that handles business sales and tr- and, purchases and, things like that. and, you don’t have to actually pull the trigger on that at that point, but just start talking about it and know what, And, And, don’t just talk about it, just that business [00:11:00] owner, that, you know, that, that man or that woman that, that runs the business but, as a family. and, the husband and wife or the w- the two spouses together, whoever, whoever they are. maybe even the kid sits in on the, on, on the conversation, and, so that if the time came sooner, and more expected, more, I’m sorry, more unexpected, then, then everybody’s ready even if, you. didn’t actually get it done before death, but at least everybody knows what the plan was

Mike Barnes: Yeah. Better to plan and prepare. Jeff Barnett, thanks so much for all the great tips as always

Jeff Barnett: Yeah, my pleasure. I’m always glad to, be a guest and help out

Mike Barnes: Thank you. I, think what we’re learning, again, just like we, we’ve learned from before with, Jeff and Keith Luedy is that especially with legal stuff, you’ve gotta plan, you’ve gotta prepare, and just be ready because you don’t want it to sneak up on you.

Kim Barnes: as we talk about all of the factors as we care for our aging parents is the more prepared you are, the more, the earlier you have these conversations, the easier they are, and then everybody’s just on the same [00:12:00] page.

Mike Barnes: Exactly. If there’s any other topics you’d like us to discuss, please let us know. Parenting aging parents.

*This transcript is auto-generated. Please excuse any typos or mistakes.