Last week, Travel Market Report journalist Cheryl Rosen wrote an interesting piece about travel advisors bringing their children into the business. This story is good news for the industry that has been, on average, “aging out.” Many owners with decades of service have simply closed their businesses and walked into retirement. For those who are introducing their children or grandchildren to the excitement and challenges of being a travel advisor, however, there is an important consideration often overlooked until it is too late. I refer to “succession planning,” which should be part of the estate plan of every business owner, and especially those in which the heirs have an established stake.
Planning for end-of-life issues is often a forbidding subject that many families simply refuse to address. I have seen the consequences of this, as an attorney in the past. The worst case was a relatively young man, let’s call him Andrew, who called me in a panic. Andrew’s father had unexpectedly passed away and left the agency business to him. The business was a sole proprietorship, lacking any formal corporate structure to separate his father’s personal assets from the business. Within days of his father’s death, a cruise line (which shall remain nameless) contacted Andrew to inform him that a payment deadline had been missed and that a huge amount of penalty money was due immediately. Andrew knew nothing of the business and was led to believe that, as the “new owner,” he would have to pay the penalty himself.
In the more usual situation, a business may end up in the hands of the children who are not equipped to take it over as a going concern or, if they have been involved for a while, may still find that their ownership interests do not align with the need to take business and legal actions in the wake of the owner’s passing. This is a situation where truly an ounce of prevention is worth a pound of cure.
Every small business should have a succession plan. It may involve passing ownership of the business as a going concern to the decedent’s heirs or it may require a plan to dispose of the business as quickly as possible while retaining the most valuable employees. The plan for reassuring key employees is critical to the survival of the business and to its value for sale as a going concern. The situations that arise are too varied to address here and, in any case, involve the estate planning rules of the state in which the business was domiciled. This simply cannot be done properly without the guidance of an attorney with expertise in the laws of descent in that state.
If multiple children are to inherit a going business, it is, for example, imperative that the control of the business be allocated so that the children who are actually involved in and knowledgeable of the business’ needs have the power to manage it going forward. Obviously, such issues can provoke sensitive feelings among family members along with the general unease of discussing the prospective death of the family elders.
Many people react to this subject by saying, “It’s too soon; the parents who own the business are in the prime of life.” That is understandable as an emotional response, but it is not realistic. The sad reality is that life circumstances can change unexpectedly, presenting the family with economic issues at a time when they are least equipped to deal with them. The existence of an estate plan that provides for proper handling of the business can relieve the family of at least one set of worries while they deal with the rest.