Oil Prophets

Summer 2014

Issue link: https://read.dmtmag.com/i/367531

Contents of this Issue

Navigation

Page 34 of 40

34 Oil Prophets This publication is intended to provide general recommendations regarding risk prevention. It is not intended to include all steps or processes necessary to adequately protect you, your business, or your customers. You should always consult your personal attorney and insurance advisor for advice unique to you and your business. © 2014 Federated Mutual Insurance Company. All rights reserved. It's Our Business to Protect Yours® INSURANCE ISSUES Have you heard of "Galloping Gertie?" That's the nickname given the ill-fated Tacoma Narrows Bridge that opened in July 1940 and collapsed only four months later. High winds twisted the suspension bridge until it broke apart and collapsed into Puget Sound. When the bridge was being designed, decision makers "saved" $5 million by selecting a plan that used shallow, narrow girders. Even though the bridge rose and fell over four feet in mild winds during construction, they did not modify the plan. The result was a structurally weak bridge. Predictably, it buckled. It simply could not withstand the assault of 40 m.p.h. winds. Something called aero- elastic flutter — preceded by poor planning — did in the bridge. Does This Story Relate to Your Business Succession Planning? Sometimes business owners have estate or business succession plans with minor structural flaws. But what if there has been no planning at all? A no-plan approach can prove to be a disaster waiting to happen! Here are several no-plan mistakes and their potential implications, although the flutter damage from these mistakes can vary from owner to owner. • No Will A business owner with no will is actually electing to use a state's intestacy law. It mandates who gets how much and when. Some states distribute 50 percent to the surviving spouse and 50 percent to the children. All states distribute adult children's inheritances outright and, for minors, when she or he comes of age. A large inheritance received too early (like straight-line winds) may cause great, unexpected damage. Consider how a state- drafted will might affect your family and your business. • No Buy-Sell Agreement Some owners may have an informal understanding but no formal buy-sell agreement in place. Essentially, an informal understanding is a no-plan arrangement. It defers negotiations, decisions, and enforceable rights and obligations to a later time. Consider the implications following the owner's unexpected death if no value has been locked down to bind the IRS, the seller, and the buyer; if no real buyer has been guaranteed; and if no terms of payment have been laid out to ensure income to the family (at a time when earned income from the business will stop). With no buy-sell in place, all terms of transfer must be negotiated. While alive, negotiations are private and between owners. After death, negotiations are public and must include creditors, franchisors, executors, heirs, the IRS—and the probate judge. Trying to transfer a business without a buy-sell agreement is like building a bridge without a foundation. • No Practical and Certain Funding Successful business owners often have a solid estate plan in place (wills, trusts, etc.). A path is clearly laid out for their accumulated wealth. However, these estate plans almost always need cash to pay unavoidable estate taxes. An estate plan with no strategy for funding will If You Fail to Plan, You Plan to Fail Garrett Pepper Account Executive, ARMS

Articles in this issue

Archives of this issue

view archives of Oil Prophets - Summer 2014