Two minute scenarios...
If your clients need encouragement to think about their business succession plan these scenarios may help..
The Family Business...
Client: Max's daughter Sally, an accountant, had joined the family business 20 years ago. Her brother Phil was a journalist and had spent the last 15 years travelling the world. Max was starting to think about his retirement and needed some help sorting through the issues.
Objective: Like most business owners, Max wanted the business to survive. It was worth $6m and was owned by his family trust. Whilst Max had other non-trust assets, including his super, they were only worth $4m. Sally was the ideal successor to his business but he wanted to be fair to both children and wasn't sure how to achieve that.
Solutions: Max could leave the business to Sally in his Will by nominating her as Appointor of his family trust. To fix the shortfall for Phil, Max could organise a $2m life policy to equalise the estate. Alternatively the Will could ensure Sally could only take on the Appointor role on the condition she paid Phil $1 million over time (or the amount needed to equalise the estate).
The message for your clients? There are solutions for every problem. The important thing is to start talking to someone who can help you identify them.
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Not happy with a partner?
Clients: We met with four partners in a business who wanted a business succession plan. One of them asked if they could force someone out of the partnership.
Objective: If the majority of partners in a business get to the point where they are not getting along with someone it can make sense for them to be able to force them out.
Solution: We explained it was possible but that it must be done fairly or it would not be enforceable. This means that even if one person did not agree to this condition the agreement would not be executed. They should also be paid out for full value at the time of their exit.
The message for your clients? Whilst not common, it can happen - people can "fall out" for many reasons. However without an agreement, forcing someone out would not be possible - and life becomes difficult for all involved.
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Covering all bases...
Client: Allan and Peter had been in business for over 10 years - it was booming. Unfortunately Allan's wife had recently died without a Will. As a result of intestacy laws, Allan was having to negotiate with her son from her previous marriage to get ownership of the 25% shares she had owned in the business. The outcome was not clear and Allan was quite stressed about it - so was Peter!
Objective: Allan needed to get control of the full 50% of the business.
Solution: Allan's step-son only agreed to let Allan take the shares if he got more out of the other estate assets. When we talk to clients about their succession plan, we ensure all owners are identified and solutions put in place to avoid this issue. In this scenario we would have advised Allan and Peter to execute a Buy Sell Agreement between them with Wills put in place for their spouses (and themselves). That way Allan would have received the shares from his wife via her Will - at a fair value.
The message for your clients? Talk to your Advisers about your business succession plan to make sure all bases are covered.
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Would you like to generate an extra $2000* per day?
Our Alliance Partners can earn a minimum of $2000 per day (*for many it is double this figure) by providing their clients, with our help, with an estate planning service.
If you want to know more please contact us and we will send you an information pack on our Alliance Partner model.
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