Succession Planning with Rod Hatley

Rodney (Rod) Hatley is an attorney and the founder of Hatley Law Group APC.  Rod provides estate planning and succession planning for business owners and other individuals. He works with teams of professional service providers to protect the assets business owners work tirelessly to build. Rod has a Master of Laws from the University of San Diego School of Law’s acclaimed graduate tax program.

Selling a business is the American dream, the pot of gold at the end of the rainbow, the reward for years of hard work. Successful entrepreneurs make countless sacrifices in hopes that they would someday reap the benefits of their labor and live a new life of vacations, recreation, and prosperity.

You only exit your business once, so you should feel confident passing this milestone. A successful business exit reflects the preparation done beforehand. Failing to plan is planning to fail.

The owner of a privately held company has several alternatives on how to exit their business. In the absence of an exit strategy, events will inexorably dictate the final exit plan. A costly involuntary exit may be caused by death, disability, divorce, disagreement, or distress.

Selling Your Business with David King will help you take control of the sale process and make it positive one.

Transcript

 | Speaker 1: | Welcome back to Selling Your Business with David King. I'm David King, and I am the author of Selling Your Business. Begin with the End in Mind, available on Amazon. Today I am joined by my guest, Rod Hatley and Estate Planning and Asset Protection attorney Rod. Welcome  
 | Speaker 2: | Fact, David, it's honor to be with you this afternoon. Thanks for having me.  
 | Speaker 1: | Excellent. Rod is going to tell us a bit about what his work is, working with business owners and helping them to weave in their, their estate plan, which is something everyone under the sun should have. Right? Uh, but in particular, people who own businesses need to plan for the succession of their business or the protection of the assets that they might derive from the sale of their business. So, Rod, why don't you tell us a little bit about your background and what you do today?  
 | Speaker 2: | Okay. Uh, well, I'm from Memphis originally, so I came to California years ago with the Navy Jaco. So any of your viewers ever saw the movie? A Few Good Men. That's what I used to do. I was a criminal defense attorney representing, uh, sailors and marines at courts Marshal. And how I got into a state planning was a very personal story. Uh, my father had been a successful businessman, but what happened was dad had leukemia. And so at that point in his life, he was making emotional as opposed to rational decision decisions, and you can understand why. And so dad had done some basic estate planning, he had a will, et cetera, but I knew he needed to do more. But as I say, I was a criminal defense attorney in the Navy JA Corps. I knew enough about estate planning to be dangerous. So long story short, uh, dad passes on, I take two weeks, emergency leave, I go back to Memphis.  
 | Speaker 2: | And week number one, my sister and I get dad buried. And number, uh, week number two, we meet with dad's, uh, business attorney, who had also, uh, done his estate plan was basically a very simple will. And if your viewers learn nothing else from our conversation today, wills go through probate. Now, the wrinkle here was it took us seven years to get through probate back in Memphis, where I'm from. So, and I know that's not what dad wanted, but again, dad, because he was fearful and you can understand why, uh, all he had was a very simple will and will go through probate. So in the midst of all that, I decided there had to have been a better, smarter way to have done this than what my sister and I just went through. So when I came off of active duty, I was stationed here in California, but not here in, um, well, I live in practice now in San Diego, but at the time I was in the high desert of California.  
 | Speaker 2: | So what happened was I moved from, uh, the high desert down to San Diego, got an additional law degree in taxation law from the University of San Diego. They've got an acclaimed graduate tax law program. And then after completing that, I transitioned into private practice. And that's really what the, the focus of my practice has been for the, for many years now, is making sure that, uh, I have a conversation with clients about what their options are so we can help them get, set up the right way and they can avoid a probate. So, for example, in California, if you own a home, you really ought have a living trust. And, and here's the big insight, uh, in das case, his will only became effective when he died. A living trust becomes effective the moment you sign it. So it's, it's good now. Uh, so it really accomplishes two important objectives.  
 | Speaker 2: | First of all, it will avoid, uh, um, conservatorship. I'll pick on myself. So, you know, I've done my own planning, but if, let's say I'm driving home tonight, I get into a bad car wreck and now I'm mentally incapacitated. Um, had I not done any planning, at some point I'm gonna need someone to put me in front of the probate court judge and say, Your honor, this is Rod. He's incompetent now to manage his affairs. Please appoint me to be his conservator. And that's basically a guardian for a grown person. Um, and then of course, someday when I pass on assets that are in my name will go through probate. So, um, the idea of having a living trust is we put assets into it and those assets avoid conservatorship if there's any mental in capacity. And of course, someday when I pass on, uh, no probate, cuz those assets will totally avoid probate altogether. So anyway, uh, that's really why I, I wanted to transition cause I thought I could make a real difference for folks. Uh, I enjoyed trial work. It was a lot of fun, but very stressful. And my, you know, the, my challenge with it was I was always in a reactive mode. Okay. I never got to be proactive these days. I get to be proactive. I like that eminently better and clients are happier. Um, and so it's just a lot more fun to practice law that way, to be proactive as opposed to reactive.  
 | Speaker 1: | So Rod, in your work today Sure. Uh, in asset protection and estate estate planning, what percentage of your clients that you work with are business owners?  
 | Speaker 2: | I'm gonna say probably roughly about half of them are business owners. That's really how they've made their money, uh, is through a business that they either bought if they're a franchisee or perhaps they started just to, had an idea and they just took that idea and ran with it and they became successful. Uh, or perhaps they inherited a business from, uh, their parents or grandparents or what have you. So I'd say roughly half, um, well have a business of some kind and the other, uh, half, you know, work for somebody else or, you know, they may be very highly compensated executive or, uh, they might be a professional, uh, that has perhaps partnership or equity in a either a practice of some kind, law practice, medical practice, et cetera. So about half and half.  
 | Speaker 1: | Half and half. Okay. And I assume that when you're working with a business owner, you need to have some understanding of the nature and operations of their business, the ownership and those sorts of basic facts about the business.  
 | Speaker 2: | Sure. And you know, cuz that's gonna drive a lot of the planning that we do. Um, for example, uh, if, let's say, uh, and I hope this is not true for any of your clients, but, uh, I've actually worked with people who were so proprietors, and that's okay. It's a choice and it's a very easy choice. You know, I'll just go into business for myself and I'll, you know, just be a so proprietor, you don't have to file any paperwork, you know, you just set up shop and just go and go for it. Uh, the challenge is you're exposing yourself to unlimited personal liability. So we wanna take a look at, well, how are you set up to run your business? Do you have an entity like a corporation or perhaps an llc? And in many cases, the choice of whether you can be a corporation or an LLC is gonna be driven by state law.  
 | Speaker 2: | So that will tell us whether you should be, if they are a sober proprietor, then they should consider getting an entity, whether it's a corporation or an llc. So once we've got that in place, well then obviously there are various formalities that we have to, uh, observe. You've gotta file the right paperwork with the Secretary of State's office. And then there's statements of information that have to be filed on a periodic basis to keep, to make sure that the entity stays in, you know, in operation and is not sure, goes down on administratively by the, by the state. And then of course, some, you know, it's so as, uh, a client may work their business, the question then is, well, okay, what planning do you have in place? How are we gonna transition this? Because you're probably not. I mean, true story, years ago I worked with a guy who told me he wanted to die at his desk with his boots on. I said, That's a choice. And so the  
 | Speaker 1: | American nightmare,  
 | Speaker 2: | Would you like to have, uh, some ideas about how we could set this up so you don't have to do that. Maybe you'd like to die, you know, uh, on the beach in Hawaii with your, with your toes in the sand, You know, you don't have to be at your, at your desk with your boots on. So these are, uh, considerations, and we're just asking clients, well, just tell us what's important to you. Um, if they've got corporate stock or if they've got an llc. And so therefore they've got membership interests, we wanna make sure that those items get funded into their estate plan so that we avoid probate on those items because otherwise, um, they may have set up a, they may have done all the necessary paperwork. They may have set up the corporation or the LLC did everything correctly, but interestingly, and unfortunately, they never put the stock or the membership interest into a living trust to avoid the probate. And so now we've, you know, we've, we've missed an opportunity to make a successful transition, uh, down to the next generation, whether it's kids or grandkids or whoever it might be.  
 | Speaker 1: | So I imagine you've got a fairly, um, bright line between those situations where there's one owner and those where you've got multiple owners, uh, business partners who are working together, and, um, they probably have plans that if something happens to one of the owners, it's gonna continue with the remaining partners. Sure. Um, are you brought into those situations, so, so that you can help individuals plan incorporating those facts as  
 | Speaker 2: | Well? Absolutely. And, and, and if they, if it's more than one owner, then we ought to be having a conversation about a buy sell agreement probably funded with life insurance. So that, for example, uh, a couple of owners, um, one owner passes on, let's say she's married. Does the other surviving owner want to be in business with the deceased owner's husband? Probably not. But because it was an asset of the estate, now the surviving husband now receives his deceased wife's share of the business. And so having a buy-sell agreement funded with life insurance on the life of the deceased partner allows the surviving partner to be able to buy out the husband sending him on his way to now, uh, that surviving partner can continue to run the business the way she wants to, the way that works for her. Okay. So, and, and depending on how many people, how many owners you've got, there may be cross purchase agreements and all that sort of stuff.  
 | Speaker 2: | So, um, you know, it can get kind of, you know, uh, tricky how do you maneuver through all this, But it's part of the conversation that we have. How are you set up and what have you got in place, if anything? And if you don't have something in place, would you like to talk about how we could put something in place just because yeah, I, you know, ideally we're all gonna live long and fruitful lives, et cetera, but, um, you know, tomorrow's really promised to know one, so let's get out ahead of this and let's get a good plan in place, whether it's a buy-sell agreement, cross purchase agreement, or whatever, fund it with life insurance. And oh, by the way, keep that insurance enforce and effect. I mean, you know, those agreements don't do you any good if they, there's no money with which to buy out the, uh, the spouse of the deceased partner. So you are all important considerations. Go ahead.  
 | Speaker 1: | Do you typically represent just one of the individual owners? Or are you ever brought in where you can, you can also represent the, the entity that they've created. Uh, is that a, is that a, not to say is that a conflict that people can waive and you can come in and help, help the entity and at the same time help one owner  
 | Speaker 2: | Always help? Always happy for the conversation, but at a certain point, it's probably better if each of the partners has their own attorney. I mean, right. You know, if you, if you're starting off a business on a shoestring, you'd probably represent all of the people, but as the company grows, it becomes successful, et cetera. Now there's, you know, everybody has a certain amount of equity, et cetera, probably a much better idea to, for each of the parties to have their own attorney just so that everybody's had a, you know, the opportunity to talk about, well, what about my rights, et cetera, and get the right advice. Um, I mean, you can represent more than one person. You have to give conflict waivers to do. So. For example, when I do an estate plan for a married couple, um, there's an inherent conflict of interest. So when they sign my fee agreement, they waive the conflict of interest. But, um, I think it's a lot cleaner and a lot better just to say, You know what, uh, I can represent this person here. You probably need to get your own counsel. And then the attorneys can work it out between them, uh, for the benefit of their clients. So that's probably what I would recommend.  
 | Speaker 1: | So let's move on to the main event of succession planning. We have, we have a, a business, and let's, let's keep it simple. We got one owner. They built it up into a successful, thriving business. Okay. Um, and they wanna keep it in the family. What, what would be the components and what, what are the advantageous moves to make, uh, gifting shares along the way? What, if you're taking it and drawing up a perfect plan, what would Rod Hatley recommend to a successful  
 | Speaker 2: | Business owner? Yeah, it's, uh, it, well, it's a great, uh, question. A lot of it's gonna depend on what does the client slash owner, what does he or she want to see happen? What's important to him or her? Okay. Cause once I know that, then I have some pathways to go down. Uh, I never tried to put a client into a particular plan or another. I just say, Look, tell me what's important. What do you wanna see come out of this? At the end of the day, you're gone. What does that look like? And what works for you? And a lots, you know, it's not unusual. They may have, you know, perhaps family members in the business. So how do we navigate that? And, or, you know, maybe you've got one child in the business and the other kids, well, you know, I can take or leave it, but I'm not really interested.  
 | Speaker 2: | I wanna go do my own thing. Okay. Well, that's another conversation to have. How do we do, do we make equalizing distributions? Let's say we give the business, um, through a specific bequest to, um, you know, the one child, but then perhaps we have equalizing distributions for the other kids who don't wanna be in the business, but we don't wanna short them because we gave, you know, the business over to the one child. So there are things that we can do to, you know, and I always tell clients, just because you treat them fairly doesn't mean it's necessarily equal. But, you know, we try to do what we can to mix and match and make sure that we're getting the right assets to the right, uh, right people, the right beneficiaries. So a lot of that is just drafting, uh, the estate plan and if, uh, and also making sure that, you know, we've done the specific bequest correctly.  
 | Speaker 2: | We also wanna review, well, what if it's a corporation? What does the stock say? I mean, was the stock ever transferred into the trust to begin with? Or if we're talking about a limited liability company, were the membership interests ever transferred into the trust? You know, these are all things that we gotta take a look at. And so we kind of coordinate all together to make sure that, uh, when, uh, the, the, the whoever created or started the bus, the founder mm-hmm. <affirmative> wants, they either step away or perhaps they're gone. I mean, they, you know, death came, and so suddenly they're out of the picture. How does that transition? How does that happen? How does it unfold and does it work? Is there something that we talked to the founder about to make sure that we got his or her buy-in? Yeah, that works for me. This is how I wanna see this happen. Does that make sense?  
 | Speaker 1: | It absolutely. Absolutely. And look, taking as much as we can, the complicating factors out of it, if we've got one owner, a sizeable enterprise, valuable enterprise, and they have, um, one child, and the child is involved in the business, knowledgeable about the enterprise. Okay. Um, is there, are there instances where it can be advantageous to make gifts of shares throughout your life? Or just leave them in the, in the, in the estate and wait for them to pass, You know, with the estate?  
 | Speaker 2: | That's a great question because we're talking about, I mean, let's, let's take it from the standpoint of possibly the make, like, make gifts of shares. Uh, you as a cpa, you know full well that, uh, the, the child will get what's called carry over basis. So what that means is the child, when the gifts of stock are made to him or her by mom or dad, whoever founded the business, they get, um, the stock at whatever it was worth when mom or dad founded the company. Okay? But if we wait until mom or dad has passed away, then we get a step up in the basis of that stock. It's one of the few good things about dying is that you get that basis step up. So, and, and that's really a, a conversation about what's the best tax play here. So kind of anticipating, uh, future questions that you might have.  
 | Speaker 2: | I, I say I, as in state planning attorney, and I do have a master's in tax law. So I understand, uh, the tax code, but I don't do tax compliance. I mean, I don't prepare tax returns. So I always think it's valuable as the state planning attorney to bring in a CPA and, um, perhaps even, uh, the client's financial advisor if they have one, so that all of the, uh, advisors are collaborating on behalf of the mutual client. Because then I think we don't leave opportunities on the table. We don't leave money on the table. We've thought through what the potential tax fights might be and how do we mitigate those or eliminate them completely. So that's what I would say, you know, that we ought to build a virtual team around us and mm-hmm. <affirmative> that I think will help drive to a better result, um, so that when death comes, the, uh, the business gets transferred to, uh, the beneficiary in such a way that we've minimized the tax bite and we've also protected, uh, that enterprise from future lawsuit, et cetera. Does that make sense?  
 | Speaker 1: | Absolutely, it does. And I can see where we, we certainly want to bring the tax advisor into the loop all throughout. If we, if, uh, say the, the, the son daughter works at the business and providing services gets shares of stock, we certainly don't want to create taxable limb income, right. For that, for that, uh, child through, you know, because they're also a service provider. Um, sure. And I, I don't know how that comes out. If you make a gift, you know, if you made a gift and they, they didn't provide services, I think you, you're pretty safe there. But if they're, if they're actually providing services, I, I don't know if that's a tax free transaction or if that would be treated.  
 | Speaker 2: | Um, it's gonna be a char it is a characterization challenge is what you're  
 | Speaker 1: | Gonna, Yeah. Yeah. I  
 | Speaker 2: | Mean, right now under the tax code, you can, you know, gift up to $15,000 a year to anybody. Yeah. And if, uh, the, you know, and if it's here in California mm-hmm. <affirmative>, arguably the business, if it's dad started the business, you know, it's community property, okay? Mm-hmm. <affirmative>. So dad can give 15,000 month and give 15,000. So I can give $30,000 up to that a year. And if the child is married and possibly has kids, then you can start, you know, doubling those gifts for each of those other people. And so you can start to move or start gifting out, uh, the value of the business. But don't do this in a vacuum. Make sure that we brought in the accountant and perhaps even the financial advisor too. And everything that we do is a thought is thought through and it's considered. And then, you know, again, at the end of the day, I don't care what the client does, I just want them to make an informed decision. Mm-hmm. <affirmative>. So that's the really the value of bringing together the team to be able to help advise and then let the client make the choice that works for him or her.  
 | Speaker 1: | I, I, uh, hope that people are bringing you into the loop on, uh, exit strategies on m and a transactions where they're going to sell the business to a third party buyer. Either they're gonna be acquired by a bigger company, right. Or a financial buyer or a serial entrepreneur. Some other buyer is gonna come into the loop and, and, and acquire the business. So there's gonna be a, some of money financial assets to manage afterwards. And I certainly, What's your role in, in that situation when you're working with the individual owner, their family, to try to coordinate with other members of the team? What do you do as, as the estate planning attorney? What's  
 | Speaker 2: | Your role? And I handle a case like this. Uh, some years ago we had, uh, um, it was a local company here in San Diego. Gentleman had helped found it a few, some years before. I think he kicked in a thousand dollars. And, you know, it was a technology company. And, uh, so he didn't take a salary for a number of years, But in any event, the way I got brought in was his financial advisor knew that he needed to get a living trust in place cuz he was married and had a couple of kids, but had no estate planning. And so we thought, Okay, well, and he said, I'm looking to sell a company. Am I either sell this year, possibly next year. And I said, Okay, well, you know, let's at least get your foundational planning in place and then as you work toward getting, uh, the sale done, then we can do the pre-merger transaction, uh, or the pre-merger planning is what I should say.  
 | Speaker 2: | And so anyway, um, he, you know, what we did was we did the, we set it up in such a way that we moved the stock of the company out of his ownership and his business wife's ownership, cuz it's here in California, Many property applies, et cetera. And so we didn't handle the m and a side of it, but although a, a really good m and a firm was involved, but they handled the m and a side of things. We just were brought in to do the, um, the pre-merger planning of estate planning. Sure. Uh, and also some of the business planning too. You wanted to make sure that stock was outta their estates and that we put 'em into special trusts. And it was drafted in such a way that even though, uh, each of the husband, the wife had given away their shares of stock, uh, they still had access to what they gave away.  
 | Speaker 2: | So it was kind of being able to each your cake and have it too. So, um, that's really what I would see my role doing is doing that pre-merger planning and then letting, and any coordination with the other, um, professionals, the, uh, the, the CPA and, uh, the attorneys working on the m and a. I don't do m and a. Uh, that's a whole skill that I don't have and not interested in developing. Right. And say there was a really good attorney handling all that for them. So that was a, a good, uh, a good collaborative, uh, experience. And that's, you know, again, I, I stress that, I hope the clients will, uh, just not try to do this in a vacuum. You know? And really, I, I think David, to your point, uh, you know, it is working together for the benefit of the client. And I always tell people, you know, don't go cheap on this stuff. I mean, please don't do that because you think you might be saving if you pennies here or there. Good. Uh, uh, professional services providers are worth what you're gonna pay them for, what they're going to allow you to keep and to realize from the sale of the transfer of the business. So don't go cheap on that, you know? Cause the best people you can, they should pay for themselves. Absolutely. I mean, should  
 | Speaker 1: | Be return on that investment.  
 | Speaker 2: | It's just, you know, it, it, it, and I, I get it, the way they built a business was because they were penny pinchers and they were frugal. I get that. Mm-hmm. <affirmative>, but now is not the time, especially when you're selling your business for, let's say an unreasonable value, as one of our colleagues likes to say, I think it's valuable to just spend the money on good professional services and have them help you, allow them to help you, um, achieve, uh, what's so important, cuz this, we're, we're probably talking about once in a lifetime money,  
 | Speaker 1: | Absolutely  
 | Speaker 2: | Twice a lifetime if you're really lucky. But really for most people it's once in a lifetime money.  
 | Speaker 1: | You'd be interested to know, I had about a few months ago on, on my podcast, I had an excellent exit advisor, Patrick unk. And he, he quarterbacks the whole process. And he, it's not any particular aspect of the transaction. He, he works with all the other advisors and works with, with business owners to help them select the best way to exit their business. Not just going down an m and a path or not, and any particular strategy. Pick the right one and, and carry out the, And I asked him, because he, there's so many different disciplines involved in a sale of a business, Which one do you feel like you do the most? And he said, estate planning, Let him feel like I work the most like an estate planning attorney. Okay. Because that's, that's really the way he's looking at this. At the end of the day, what's increasing your net worth the most by making this exit at the right time for you and at the right form for you. Sure. And if you're, if you, if you've got, you know, wealth, what way are you leaving this for your heirs? Either, you know, in the, in the business altogether as a going concern or selling it and having, So the, the estate planning attorneys are necessary for business owners. They're necessary for everybody. But if, if you're a business owner and, and you haven't got a, a top tier estate plan, you're really selling yourself short.  
 | Speaker 2: | Yeah. It's gotta be drafted in a Please stay. And, and again, I'm not here to badmouth anybody, but you know, legal zoom is probably not the <laugh>, you know, the the option or, or the choice that you wanna be making, you know, uh, find a, find somebody who does estate planning does it regularly. So they're really good at it. They're very up on the laws, et cetera. Uh, and work with that person and make sure that they help you work through whatever the issues are, especially when it comes to your business. Because, you know, um, if, if you're gonna transition that business after you pass on, or let's say you're getting ready to sell it in, in the example I was, uh, referencing earlier, uh, this gentleman sold his business. There were total of four partners I worked with. Two of the four, uh, they sold it to a major Bay Area technology company, which you can probably guess what it is.  
 | Speaker 2: | And it was for really life changing money. And, uh, they wanted the technology. So, and what happened was, uh, they had probably delayed more than they should have. I met the gentleman in April of the year, and then by September they wanted to sell, they just signed a term sheet. So <laugh>, you know, and what they were told is most of our transactions take 60 to 75 days to close years, go a lot more quickly. So, you know, we had to jump into action and get everything drafted to, you know, and, and, and we coordinated with the, um, m and a attorneys and all the other players. But it interesting that Patrick would say that, that he's really focused, or even though he doesn't do that, I believe he's really takes that on as kind of his role to kind of make sure all of that is coordinated. Very  
 | Speaker 1: | Interesting. He, he was clear to say that I'm not any one of those, but if there's any aspect of, of what they do that's similar to what I do and the way that I look at this, it's probably the estate planning attorney. But let me test the similarity between your services, if you've got a business owner, and how much time would you say is the minimum in advance of their exit that you need to start working with them to lay, get their ducks in a row so they'll properly be able to do?  
 | Speaker 2: | That's a great question. And it's going to, I, I mean I've got colleagues and you know, uh, you, you've got them too who would like, and what they do is they work on exit strategy planning. Mm-hmm. <affirmative>. Um, now sometimes, uh, life happens, you know, someone is passed on the patriarch who built the business, he's out of the picture. You know, that's gonna have to happen sooner than like, you're gonna have to transition that business. Maybe mom is unable to do it or never knew what to do and the kids aren't interested. It was dad's thing and he just built this great business doing it. Uh, or someone's become incapacitated mentally, maybe as a result of an injury or a disease. So now, you know, everything has sped up. You have to do something quickly. Uh, but barring those things, uh, what I hope is that clients would come to us with at least some lead time months would be preferable.  
 | Speaker 2: | And in some cases, years might even be better. I know one of my colleagues here in town, you know, would like to have, you know, conversation three to five years before the exit. That's fabulous. If people, you can get people to think in three to five year, you know, outlooks. But, um, usually they don't do that. So now it's a matter of, well, given the timeline you've got and what we've got to work with you, you know, you take your clients as you find them and you just work with them as best you can to try to help achieve what's important to them. So, you know, I, I mean, if I could have more time, and in fact, uh, for the one example I shared with you where, uh, the gentleman had sold his company to a major Bay Area player, um, we, we had to do some, uh, valuation of the shares of stock of the company that was gonna be acquired.  
 | Speaker 2: | And, uh, one of our local colleagues did the, the valuation for discounting purposes cuz we're trying to squash down the value of that stock and push it out of their estate. Um, he said, I'm not gonna charge you about this. I know that they kind of delayed on getting this thing going, but gosh, if we could even had even a couple of months or even a month more of a head start, there's a lot more we could have done. I said, I hear you loud and clear. And I dripped on him from April all the way to September, just once a month checking in. And then finally in September they signed the term sheet, we're ready to go. So you just, you do the best you can under the circumstances, but if I have my druthers, uh, more time rather than less, as always I  
 | Speaker 1: | Ask. So yeah, you've seen situations with business owners that are done properly where, where you know, that properly planned and executed on an exit. And I'm sure you have seen the wreckage from those that did not plan considering the, the, the vast array of, of situations in between the two. And considering that a lot of people, there's only so many hours in the day and we all have limits in our budget about what we can do properly. What one thing would you advise that business owners make sure that they've properly taken care of with their advisors of any sort, either estate planning attorney, their tax advisor?  
 | Speaker 2: | Gosh, that's a, that's a great question. Mm-hmm. <affirmative>, I'm just limited to the one. Hmm.  
 | Speaker 1: | Yeah. Or, or think of, you know Yeah. What the problems you've seen and how could those have been avoided?  
 | Speaker 2: | You know, I, I gotta go back to my own experience, you know, anytime I can get a, keep a client outta probate court, that's, to me that's a win. Yeah. Probate just takes time. It costs money. It's a matter of public record. And in California where I am, the, uh, attorney's fees are statutory. So on a $1 million home, the statutory probate attorney's fees on that would be $23,000 just for that one piece of property. Mm-hmm. <affirmative> and the personal representative gets a like amount of money so already on a $1 million piece of property and forget what the net value is or what the equity is, we're looking at the fair market value. You're spending 46,000, call it 5% of just that value of the property. And so it's, it's just, you know, it's so unnecessary and it's so easy to get this taken care of.  
 | Speaker 2: | Clients would just simply make, you know, resolve to, to get it done like this and much is the same, you know, when we get ready to sell their business, you know, just, you know, make the decision, we're gonna do this the right way cuz we don't know how much time that we have realistically. But gosh, you know, if we can get out ahead of this and set it up the right way, whenever your time comes or whenever you wanna transition is a lot better than if you hadn't done anything at all, or if you delayed too late to get started to do something. So if I can encourage clients to do anything is get that estate plan in place, transfer the stock of the corporation or the membership interest into the trust, so now the surviving spouse can, as the trustee do whatever's necessary to wrap all that up or sell it or whatever needs to be done.  
 | Speaker 2: | And then you avoid the probate, um, of all these, or, you know, because if we're a community property state, have to file the spousal property petition to confirm the deceased spouses half of the community property and those in the stock or the LLC interest to him or her, whoever the survivor is. You know, I would just always encourage that the other stuff can be done, uh, in, in due course. But, and also, let's talk for a moment. You know, we're filming this now during the, uh, the coronavirus pandemic. So having a good healthcare directive and a good HIPAA authorization, those are great documents to have. Mm-hmm. <affirmative>. And I think that's, you know, I mean, we hope that none of us has to go to the hospital, especially during a time like this. But if we've got a good plan in place and we've got those two documents, that can make it a lot easier for the family than they have to rather, you know, if you didn't have 'em, now they've gotta make those gut wrenching decisions.  
 | Speaker 2: | What would mom or dad have wanted? Because, so we never talked about it. Uh, or I think we did talk about it, but I can't remember exactly what they wanted and nothing's written down and, you know, it just, it makes, it just takes all the guesswork out if that's what I'm saying. So if I have any bias, it's gonna be for the estate plan, get the estate plan done, and for the business, put the stock or the membership interest of the LLC into, uh, the trust so that it can flow through the trust and the surviving spouses, the successor trustee or mom and dad parish uncommon disaster, haven't forbid. Then the successor trustees could be the kids, you know, the adult children, they can now deal with that without having to go through probate court, which is unnecessary evil, but gosh, it's so much easier to do this ahead of time and get the assets taken care of that way. I hope that's a helpful, uh, description.  
 | Speaker 1: | Absolutely. Yeah. Have you got any other words of wisdom based on all of your experience that you would wanna share today with business owners to, to set them on the right way here?  
 | Speaker 2: | Yeah, you know, uh, it's, it's a great question. I would say this, um, especially if someone, uh, you know, don't think that, you know, I know we're all busy people and, and I get that. And if you're running a business, there's not enough hours in the day. You're working nights, you work weekends and you have no family life, et cetera. It can be, it can feel overwhelming, but I just encourage people, you know, meet with an advisor. Okay. And there are various groups that can provide guidance on how to select a good advisor. Um, just, but, you know, get, get started down that pathway. I mean, be responsible because now you've got a business and you've got employees, possibly, you've got, uh, consumers, people who are relying upon your service or your product. So these are important considerations, you know, I mean, otherwise you would just go work for somebody and get your, you know, paycheck every two weeks and hopefully you, you know, you know, contribute to a, a retirement plan, but you know, you went into business for yourself and so there's a value in doing that. Let's do it the right way. So I can't encourage people enough, you know, get good advice and don't be afraid to spend money. I mean, obviously be a smart shopper, you know, compare, but you know, don't, don't achieve out on getting good advice because it can make a measurable difference in the results that you'll achieve for yourself and for your family later on. I hope that makes sense.  
 | Speaker 1: | A a absolutely. It does. And it's always amazing with the, the percentage of, of a small business owner's net worth that's wrapped up in the business that they won't to invest just a little bit more money to protect it. And, um, you certainly need to, um, it's indispensable. They need to find advisors early on who they trust to give them the best advice, and that they don't have to, they don't have to second guess the advice they're getting. Yeah. And, and listeners, Rod Hatley is one of those attorneys who you can trust. He loves his work, he knows what he's talking about, He cares about his clients. And, and, and the people who know Rod know that as well. So, Rod, it was great to have you on this show. I really appreciate your time and you sharing all of this wisdom with our listeners out  
 | Speaker 2: | There. It's been an absolute honor spend time today. David, thank you for having  
 | Speaker 1: | Yeah. Well, with that, this is Selling Your Business with David King and I'm gonna sign off all of you, stay healthy out there, be well, and we will speak with you next time.