Estate Planning for Business Owners with Julie Eisenhower

For several years now, I’ve taught many different financial concepts and strategies. As we embark on a new series that focuses on the legal side of things, I’d like to take a slightly different approach. Rather than hearing it directly from me, I’ve decided to bring in a series of guests to explain the real-world application of each of these legal subjects. I’m doing this with the hope that it can be of value to you and your business, hearing from some of the industry’s top legal professionals. Because of the nature of these episodes, I will summarize the information right here in the blog. However, I really encourage you to take the time to listen to the podcasts to get the full scope of their expertise. Without further ado, I’m kicking this series off with an interview about estate planning for business owners with Julie Eisenhower.

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TIME INDEX:

• 00:42 – Estate Planning, with Julie Eisenhower
• 02:26 – Business Owner vs. Non-Business Owner
• 04:37 – Case Example
• 08:04 – Inheriting a Business
• 10:57 – Co-Mingling
• 13:15 – Power of Attorney
• 16:49 – Recommended Reading
• 18:48 – A Nugget of Wisdom
• 20:10 – Wrap Up

A Quick Introduction to Julie Eisenhower

Julie is an attorney with TriAmericus Law, PLLC in West Knoxville. She has an extensive background in family law, having served as an Assistant District Attorney General for the Ninth Judicial District prosecuting child support cases in Roane and Meigs Counties. Likewise, Julie prosecuted child support cases for Knox County for many years and even had a firm that focused on a variety of family law issues. In her career, she has managed Social Security Disability and bankruptcy cases, leading to an extensive appellate practice where she helps attorney and non-attorney clients to research, draft, and argue briefs before the Tennessee Court of Appeals.  

While serving as a court-appointed personal representative for an estate, she realized the importance of effective, solid estate planning.  With her newfound passion, her practice turned its attention to the areas of estate planning and probate. Every day, Julie dives deep, helping her clients create an estate plan that captures their intentions and upholds the integrity of their legacy. Similarly, with her experience as a personal representative, she guides her clients through the hurdles of the probate process. If you’d like to connect with Julie, you can find her on LinkedIn or at TriAmicusLaw.com. 

Estate Planning for Business Owners

Creating an estate plan is an exhaustive task. However, it can be even more complicated when it’s being done for a business owner. The first thing to consider is the type of business entity you have. This will dictate the specific language and provisions included in the trust or will. However, it can also dictate how your estate planner sets the plan up. For example, if you’re a sole proprietor, you are the business. Therefore, it may not be possible for the business to be passed down into the legacy. So, the estate planner must determine how they can capture the intention of the business owner and provide the tools and guidance in the trust instrument or last will and testament

Likewise, you want to ensure that you have the proper documentation for your business entity. One example of this is an operating agreement within an LLC. This document determines what happens when a member passes away. If there’s no language within these documents (or if there are no documents) outlining what should happen with the business, then it defaults to state law. Therefore, you also want the estate plan to reflect what those documents have to say regarding the death of a member or stakeholder. It should outline the communication between the executor and the surviving business owner(s) and stakeholders.

More than Trusts & Wills

I’ve worked with a client who had an LLC taxed as a partnership. In this case, it was a husband and wife ownership team. The husband owned 99% and the wife owned the remaining 1%. Unfortunately, the husband was killed in an accident and they had no buy/sell agreement in their business documents. In fact, the husband’s 99% wasn’t addressed anywhere in the last will and testament or trust. So, what mechanisms can be employed as part of the estate planning process to protect business partners, shareholders, and even customers? It’s important to keep the business out of probate. Therefore, you should be very clear with your estate planner about your intentions for your business after your passing.

Many times, business owners have an overwhelming majority of their net worth tied into their businesses. This makes it all the more important to plan for your passing. You don’t want to leave your family, your team, or your business partners in a bad position as they sort out your estate. Although you could use a trust instrument to protect your assets, ensuring a benefit to your family, estate planning is about much more than trusts and wills.

Beyond these important documents, estate planning includes life insurance coverages. It involves financials and ensuring that beneficiary designations for your policies are correct. This is done to give the survivor quick access to much-needed income and to make sure the liquid asset of the business itself is protected. Trust instruments are often used in estate planning for business owners but they aren’t the only vehicle involved.

Inheriting a Business

In an interesting twist, we’ve had quite a few clients inherit businesses in the past year. But this can be a tricky situation. Especially for business owners who are already working 80-90 hours per week in their own businesses. So, what impact does this have on the documentation you’ve already got in place for your own estate?

First, you need to examine your circumstances at the time you’re receiving the inheritance. Ask questions like, does it need to be co-mingled with other accounts? For example, if you’re going through a divorce? Will it remain a separate property or become a marital property once it is co-mingled? When it comes to receiving a business as an inheritance, you must review any and all documents related to the business you’re inheriting. These documents trump what has been set up for the deceased’s estate plan and you will need them to be your road map for how you proceed. But what about the issue of co-mingling?

What is Co-Mingling?

At its most basic, co-mingling is bringing separate assets or monies into the “marital” account. Once it goes into this account, you are now using the money for marital reasons. For example, it could go into updating the marital home or paying off loans that would be considered marital property. If you put funds from an inheritance into a marital account and then you get a divorce, the court would view those funds as marital funds and would be split.

Years ago, I had a client who received an inheritance of around $700,000. Because we didn’t know how strong the marriage was, we decided to put the funds into the husband’s account, preventing them from becoming co-mingled. As time went by, those funds nearly doubled in value, and divorce did take place. Because we kept the funds separate, the husband kept it all. You must review whether to co-mingle on a case-by-case basis. In some instances, it may be necessary to co-mingle. Other times—like the one I just described—it could save you a fortune to keep them separate.

How to Use Power of Attorney in Estate Planning for Business Owners

Power of attorney is such a powerful document. In fact, it requires a higher mental capacity to execute a power of attorney than it does to execute a last will and testament. It grants you the right to make legal and financial decisions on behalf of an individual. While you may be familiar with the power of attorney and how it pertains to your aging parents, have you ever considered that you might need it for a child that has just come of age?

Most often, you will use a medical power of attorney for your children above the age of 18. However, it might be beneficial to also include a financial power of attorney. Still another type that you might consider is a “springing” power of attorney. This is one that takes effect in the event that a doctor declares your child or parent disabled. So, how is power of attorney (POA) used in estate planning for business owners?

How you use a POA is dependent on your unique circumstance. One example, however, is that my wife and I have immediate POA for each other. She can sign financial documents for me, and I can sign for her. There have been many times when we’ve had to actually use those powers of attorney. I’ll be out of town and need a document to be signed. Because of our POA, she can step in and sign it in my place. But if she weren’t available to do so, I have a backup plan. My brother has been named as a successor. This enables him to sign for me, in the event that my wife is unable to.

Wrapping Up…

Friends, I know that the legal areas of your business are rarely (if ever) fun. Estate planning can be hard enough but estate planning for business owners? Well, that’s downright frustrating. I hope that these insights from Julie have given you something to think about. Maybe you need to reexamine your own estate plans. Perhaps, you need to sit down with your attorney and your financial advisor to add additional language or even start from scratch. Wherever you find yourself in this regard, now’s the time to address your estate plans.

Life is hard. I get that. But, friends, life is good. Estate planning can be frustrating. But with a little insight and some help from your attornies and financial advisor, it can at least be financially simple. Let’s go out and make it a great day!

If you need assistance with (or have further questions about) your estate planning, reach out to us. The Financially Simple team is here to help. Our expert team is always available to review your goals and align your plans with them.