EPS 28 — Small Business Succession: Avoiding the Pitfalls

What happens to your business when you’re gone? In this episode, Jerry shares a real-life story of a woman left struggling after her CPA husband passed without a plan in place. From probate headaches to locked accounts, Jerry explains the simple steps you can take today—like payable-on-death designations, life insurance, and succession planning—to protect your loved ones and keep your business running smoothly.

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Transcript

UNKNOWN: 0:02

Thank you.

SPEAKER_00: 0:59

This is Jerry and welcome to the Pink Money Podcast where we talk about all things related to money from a gay perspective. I was recently talking to this woman. And she was probably in her, I think she said late 60s, early 70s, I believe. And she was still working in a dental office anyway. But that's beside the point. What was kind of disturbing to me and a little frightening as well was the fact that she told me... her husband had passed away recently and he had stage four cancer and she said it was rather sudden in the sense that he got checked out he was feeling poorly and next thing you know they diagnosed him next thing you know he's going downhill and then he passes away so Obviously, that's tragic and it's upsetting. And she said that there was probably, I believe, a 10-year-ish age difference as well. So what immediately happened was she was telling me about the situation that he passed away, and she was feeling very overwhelmed by everything that was going on, things she had to take care of, and trying to get everything settled and get access to his account. And as soon as she said that, I started thinking what do you mean access to his accounts and she started telling me that they handled their financial affairs separately and that he was actually a CPA and that he ran it as a sole proprietorship and she said that while he was alive he had mentioned to her well you know I really should put you on my accounts in case something happens and they never got around to it she said that he, at the time they were talking about it, she felt like, or I guess he felt like he didn't have the energy to go down and sit in front of the bank and get everything taken care of. Because I know how that goes. When you don't feel well, you don't feel well, right? Just period. You don't want to take care of anything. And also when you do go to the bank and you need to get something like a power of attorney turned in or you need to change a registration on your bank accounts or add a payable on death, any of those things, you know, it does take a little time, right? It just depends on how quickly your bank moves. If they aren't very busy, you could probably be in and out of maybe a half hour. But sometimes it takes quite a bit longer. I know that I sat in one bank for over an hour until we got to speak to someone and then The woman really couldn't get things organized and I spoke with one of the managers there and, you know, we got things taken care of. But, you know, it's very upsetting sometimes when, again, you think that things are going to be handled appropriately. They're not. And you have to really commit the time and energy to see it through from A to B. And I've even had, you know, documents get rejected. And, again, you have to go through the whole rigmarole all over again. So the point being here is, is it was a terrible situation for this woman, and they didn't take care of it in time. And that made things extremely difficult for her, the surviving spouse. And so what was also disturbing to me, as she had mentioned, that she didn't even have the$400 to... go and file with a probate court for a small estate. A small estate just means that your total estate falls under a certain dollar amount and therefore doesn't necessarily have to go through the whole probate rigmarole, which is very time consuming and costs a lot of money. Typically, you're looking at somewhere starting around$5,000 and going up from there, depending on the complexity of your estate. And I'm saying your estate, meaning the person who's passed away and how well things were organized and how many things you have to take care of. And she didn't even have, again, the ability to get into any of his bank accounts which had the money in there. So if you don't even have$400 to your name and... we're going down this road that you know your husband is terminal, that's a big problem, right? And you need to take care of those things, period. I know you don't feel well, but you're going to have to get up, get out of bed because you should have done this when you're feeling good. Long, long, long story, but lesson learned. My point being as well, you know, some of the things that you can do to make things easier on your beneficiary or survivor, whomever it is, you can... Put a payable on death for your checking and savings. I know I've talked about this before, but it deserves to be reiterated. Some of the banks, I know, I believe it's Chase, you can just print the documents off, you know, online, sign it, get it notarized and send it in. Some I've seen that, you know, you have to go down and speak with them in person. It just really depends. But nevertheless, you know, thinking about it, and doing it are two different things. If you're thinking about it, take the next step and do it. And even when you print out the documents and you go through the whole rigmarole, let's say you have to get them notarized, well, that's, you know, again, a step in and of itself, but then you also have to get the document sent in and make sure that it's approved and that there's no hiccups and that, you know, something's missing. And you can do all these steps ahead of time, and you can do them one at a time. Make yourself a laundry list of all the different accounts that you have. You know, your checking, savings, investments, your credit cards, et cetera, et cetera, et cetera. Go down the whole list. And even if you've gone through and created a simple will that, let's say, hey, I leave everything to my wife, my children, my, you know, my wife, boyfriend, husband, whatever. So that's one thing, right? And that's helpful. But when it comes down to it and you've died, then those assets have to be settled and distributed. And that means that, again, depending on the size of your estate, It may get tied up in probate court, and the survivor may not have the ability to access these funds quickly or easily, because these institutions are going to look for all the proper documents to make sure their I's are dotted, T's are crossed, and are not given money or access to the wrong person for the wrong reasons. So they're going to want a copy of the death certificate. They're going to ask you if you have letters of testamentary that are issued by the probate court, and they're going to make sure that, again, the These accounts are not supposed to be delivered to somebody else. So they're going to be very cautious and conscientious about getting these right documents. Believe me, I've seen it many, many, many times that, again, the spouse is overwhelmed and is just going through not only the grief cycle, but they're dealing with the hassle of settling these accounts. To make things, again, easier on the person, I always recommend that you put on these devices, these legal devices that help avoid probate so that account can be settled quickly. Like a checking savings account, you can easily put on a payable on death. You can go to your bank, call your bank, whatever, tell them, I would like to add a payable on death to my account. Very simple, easy to do for the most part. Maybe it does take a little bit of time, but it's well worth it. Maybe not so much for you, but it is definitely going to be much appreciated when it comes down to your beneficiary. Now, in your investments accounts, you can also do the transfer on death. Same thing. It avoids probate. And even some of your assets, let's say your vehicle assets, You can easily as well, I know here in Texas you can, I think at least some 20 some odd cities that you can also add a, you can transfer that vehicle on death as well with a particular form. And even your real property, your home, you can do that as well. You can print out the form. You can sign it, get it notarized, and send it off to the county clerk, and they register it. And then, again, all you have to do is present the death certificate, et cetera, whatever else they need, which is, again, far easier. Typically, when you go to the coroner or you go to the funeral home, they're going to give you about a dozen death certificates. Because often these institutions want a certified copy of the death certificate. They don't want a copy of it. They want a certified death certificate. So you will usually walk away with a bunch of them because you'll need them. And again, that depends on how many things you're going to have to settle. But all these things can be taken care of for the most part ahead of time. And if there are other things that need to be distributed via the will, so be it. But the bigger assets, you know, again, the access to these accounts takes precedent and should be the easiest things to get to the beneficiary or your surviving spouse. And again, the titling, registration, you know, is paramount. You know, look at, again, and talk to the bank if you're unsure, but they will tell you, you know, these are the documents that are going to do what you want done. transfer it outside of probate via transfer on death, payable on death. And again, if you never thought about who gets your car, who gets your house, you probably thought about putting that in your will, which again is fine. But if you know who's going to get it ahead of the time, you don't need to put it necessarily in your will per se. Yes, you can put it in your will. Hey, they get all my vehicles or they get this particular vehicle. But if this particular vehicle is going to go to this person, you could easily put that transfer on death. If this home is going to your spouse, to whomever, and there could even be maybe an inkling of trouble down the road, or maybe you just want to avoid any kind of hiccups, do the transfer on death because it will bypass the will. And even, let's say, in your will, if you said my home goes to whomever, let's say you listed your first spouse, Then you guys got a divorce. If that first spouse is in your will, you never changed your will, then guess what? For the most part, it's going to go to your first spouse. Now, maybe there's going to be a judge who makes a different decision, but that could take some time. If you have the transfer on death and you put in your current spouse, It doesn't matter what's in that will. It will bypass that will and go directly to your spouse. Much, much easier, more direct. If you have a trust, it does the same exact thing. It bypasses the will. Whatever devices or whatever assets are in this trust, they will also go directly to whomever the beneficiary is. Much easier, much simpler. If you have a significant amount of wealth, you typically will go through a much similar process estate planning process, but you will probably work with someone one-on-one who can guide you. Of course, you can always use an attorney, even no matter what the amount of your wealth is. That's probably the best way. But if, let's say, you're trying to save some money, you don't want to spend the$500,$600,000, whatever it is, Okay, fine. These are the simple documents that you can use. If again, let's say you just have a small estate, you have few assets, you have one or two cars, you have a home. you know, you have your bank accounts, you know, a couple investment accounts, okay, you know, not so many things, then again, then do these simple tools, use these simple tools to avoid the whole probate process. It's just a quick and easy way. If you again, have significant amount of assets, and you have a business, or regardless, if you have a significant amount of assets, but you have a business, sole proprietorship, LLC, a partnership, you know, the you really have to do your planning ahead of time you have to again have the right tools in place so that these assets can go directly to whom they should and that means that you have a business succession plan in place if you have a partner and everything's supposed to go to your partner then again have the right devices in place to do that if everything goes to your spouse the surviving partner is most likely is not going to want to go into business with your husband or your wife, unless, again, they were very involved. But still, they may not want to continue that partnership. So they may need you to buy you out. And then that depends on whether they have the money to do that. They can put in place something like a key man policy, and that would make sure that the money is there to pay you off so that they can have total control of that company. They can also have cross-partnerships agreements where they each have insurance on everybody. Again, you could have, hopefully, an insurance policy from your spouse that gives you, you know, immediate cash as well, and that way you have, you know, you're not trying to find$400. You know, you have the cash, the ready cash available because the insurance policy is going to pay out to you, barring some, you know, unexpected weird event, like if you committed a crime or you murdered your spouse, believe me, the insurance policy is not going to pay out. And if your spouse committed suicide, as long as typically this is usually in most life insurance policies, if it's beyond two years, then it will go ahead and pay out. If your spouse committed suicide within the first two years of the policy, it's not going to pay out. There's usually a suicide clause in every insurance policy. So, again, the life insurance company, when you contact them as well, and you say, hey, my spouse is deceased, and they're going to ask why, and you're going to tell them why, and they're going to get a certified copy of the death certificate, and on the death certificate, it's going to state the nature and the cause of death. If it was an auto accident, it is what it is. You know, if it was stage four cancer, it is what it is. If it was some... crime that was committed, like your spouse was committing a crime, that's not going to pay out. Again, and if they've killed themselves within the first two years of the life insurance policy, it's not going to pay out. So, barring anything strange like that, you're going to have the proceeds that you need, and you always, in my opinion, always want to have a life insurance policy on your spouse that you have total control over. Meaning, You're the owner of the policy, you pay the premiums, and you make all the decisions on who the beneficiaries are, which typically would be yourself. Your spouse is only the insured, and that's perfect because then you know that that policy is in place and remains in place no matter what happens between you and your spouse. If you and your spouse get a divorce, Well, that's just one of those things, right? But you will always keep that policy. They can ask you if you would sign it back to them, and that's up to you. I wouldn't, but that's up to you. That's just a valuable thing to have. If you have a million-dollar life insurance policy on someone that you've had for a number of years, you're probably not going to want to let go of that easily. If he wants to get a new insurance policy for his new family, husband, wife, whomever, then go ahead and do that. That's outside of, you know, your business and that's their business. And if it costs him more because he's a lot older and maybe in poorer health, too bad. You know, that's just how it goes. So always have a life insurance policy that you control and have the ability to make sure that the premiums are paid because you've paid them. I know on sometimes some life insurance policies, there's a, you know, the ability to have a person notified if the premiums don't get paid and you can step up and pay it. That's nice, right? You know ahead of time, but it's better to be the owner and that way you know and have total control over exactly what happens to that policy. Back to this business. So again, you need to make sure you have the ability to access your spouse's accounts, all of them. Especially if it's a sole proprietorship, like in this case, your husband is a CPA, then you need access to those accounts. So work with the bank, you know, they have their business accounts, they have their personal accounts, all of them should be set up so that you have the ability to access it doesn't mean you have to be added on as a joint owner, right? that may or may not be something you want to do. You could have joint tenants with rights of survivorship. You could have tenants in common. It all depends, right? Whether you set that up in that way or not. But It just says that you have the ability to gain immediate access to that account. If it's joint tenants with rights of survivorship, then you are, and it's just the two of you, because you could have multiple ones, but if just the two of you, then you know you automatically have total control of that account. Each of you equally can put money in, take money out at your leisure. If you're the sole survivor, it is what it is. You submit the documents, you submit the ability to re-register that account in your name only, and then boom, you go and decide whatever you're going to want to do with the account. Transfer it, liquidate it, whatever. So I don't mean to go on and on and on about this, but it's just still surprising to me that at this day and age, when people know ahead of time that there is something that's Something's going to happen to each and every one of us, right? We know we're all going to die at some point. It could be tomorrow. It could be 10 years from today. We don't know. Maybe it's even 30 years from today. You need to take these steps today. Write out a list of everything that you have and start making these changes today. because it just is the right thing to do. It makes things so much easier. You can do a letter of instruction to your spouse and you can say, hey, you know, at the time of my death, you need to contact, you know, maybe Federal Credit Union, you need to contact Chase for my business account, you need to contact, you know, E-Trade for, you know, my IRA and go on, you know, go through that list of everything you have credit cards, you know, your any kind of, you know, if you have a loan somewhere, you know, maybe your spouse doesn't know every single thing that you have, maybe you got a CD out there through who knows where they know the Bank of Puerto Rico, you know, there could be all kinds of things that, you know, maybe you're just not the best, most organized person, they got to dig through all this stuff. Just make it easier on them. That's all I'm saying. Because it will really pay off in the end if you really love your spouse, and they will be eternally grateful for you. So a letter of instruction is not legal in the sense that it's like a will, but it just is a step-by-step, if you will, of what needs to happen at the time of your death. And these are the things that they could find and where they can find them, especially if, let's say, you have a... What do you call that? Lost. In your bank, you have a locked box. I'm at a loss for what that's called. A box where you have a key in the bank. It'll come to me in a minute. Nevertheless, where's that key, right? Where is this key? Do you have it, you know, in your car? Is it on your key ring? Is it in your top drawer? You know, who knows? Probably doesn't even have any kind of tag on it. Someone may not even know that you have a deposit box somewhere. So, again, who knows even what's in that? You know, they have to have access to it, and that bank is not going to let anybody just willy-nilly get in there. It is a huge undertaking to get into a locked box at a bank. So don't even think that it's going to be easy if you haven't made it easy on them. It's not. So my point, I guess, is made. I won't go on about it. Again, estate planning to me is, it's complex, but it takes time. And the time to do things is today. And even if you know you're in that situation of, let's say, stage four, you know, you have your good days and your bad days and plan to take care of things the best that you can on your good days because you know you're going to run into the bad days. And your days may be numbered. All of our days are numbered. But we got to get to this stuff today. That's just what makes sense. And if it's not even your stuff that you're worried about, hopefully you have your own ducks in a row. Look to your spouse. Make sure their ducks are in a row. Look to your mom, your dad, whomever that you're taking care of. If you're going down the road of taking care of your parents because they either have dementia or Alzheimer's or, again, their own stage four issues, whatever, Again, you need to take care of this stuff with them today. Today, today, today, while they still can, they have the mental capacity to make these decisions, and you can make it easier on yourself. It just is the smartest thing to do so that you can breeze through that time when they're not around and you go through the whole grief cycle of just dealing with the emotional aspect of losing your loved one. But you don't need to compound it with this huge financial spider web that's created that you're fighting to get through because you guys didn't take the steps ahead of time to make it easier on you. That's my best advice. Anyway, I hope you're having a great day, and I will talk to you later.