As a business owner, you may be more like Prince than you think. The rock idol left no will, or plan so that his multimillion dollar empire and legacy would carry on when he died.
Attorney Mara M. Erlach of Santa Rosa-based Anderson Zeigler talks with the Business Journal about why, when someone dies, that lack of estate planning can send a business into tailspin and tear families apart.
YOU HAVE BEEN WITH ANDERSON ZEIGLER HOW LONG?
MARA ERLACH: Here a year, but practicing for about 13 years, previously in the Central Valley.
ALL IN TRUSTS AND ESTATES?
ERLACH: Yes. All in trusts, estates and trust administration.
OF YOUR CLIENTS, HOW MANY HAVE BUSINESS INTERESTS?
ERLACH: At least half. Either their own business or they have a stake in a larger business.
ARE MOST OF THOSE WINERY OWNERS OR ALL KINDS OF BUSINESSES?
ERLACH: All kinds. Of course, there are a lot of winery owners in this area. But it includes mom-and-pop stores.
YOUR AIM IS TO CREATE SUCCESSION PLANNING?
ERLACH: Yes. Business owners want to create succession planning because they have children who want to be in the business and they want to insure continuity. If they don’t plan, the business can come to a complete halt. Probate court can throw a wrench into everything.
THAT CAN DERAIL ANY PLANS TO MOVE THE BUSINESS ON TO THE NEXT GENERATION?
ERLACH: Yes. In some families, only one child wants to be involved. If there’s no estate plan, all the children get an interest in the business that they may not necessarily want. With a trust, the person who has the business can funnel the business to the child who is interested, and usually working in the business, while offsetting that inheritance to other children with something else.
SUCH AS CASH?
ERLACH: Cash, a house, other assets. That way the business goes to someone who will take care of it and grow it further.
IT’S UNLIKELY FOR CHILDREN TO HAVE EQUAL INTEREST IN THE BUSINESS?
ERLACH: Yes. Normally a child who is interested in the business has been working in the business and given a lot of his or her life to the business. Such children can feel slighted or pushed out if the business goes to all the children and they all, say, vote to sell it.
THEY CAN LOSE CONTROL JUST BY DEMOCRACY?
ERLACH: Absolutely. Also continuity is affected because if there is no plan, there is no one to step in and ensure that the business continues after the death of the owner. Bills need to be paid. There is no one to take care of them if there is no trust.
IF IT GOES TO PROBATE, THAT CAN BE A YEAR OR MANY YEARS?
ERLACH: Correct. People are surprised to learn that if they have only a will, it’s treated the same as if they had nothing at all. It’s going to probate court. You need a trust. People want to protect from liability by incorporating a business — a corporation or LLC — then having their trust hold that interest.
THERE’S A DOUBLE LAYER OF LIABILITY PROTECTION?
ERLACH: Yes. With an LLC or corporation. A revocable trust doesn’t protect against liability or creditors, but an irrevocable trust does. The problem with that is it removes control from the people who set it up.