exit strategies for business owners doing estate planning

Words of Warning: Estate Planning and Exit Strategy for Business Owners

It’s easy to assume that the world of estate planning never changes. Unfortunately, a lot of attorneys hold this same view and get comfortable in their roles without examining the way they do business. I’m an innovator at heart, eager to learn new ways to accomplish my goals, and never afraid to change something for the better—and something can always change for the better.

How to Exit a Business When You ARE the Business

I had a client come in looking for an estate planning attorney. She was a successful architect who had recently started her own design firm, and she came to me after she had met with several other lawyers. A recent valuation of the business stated it was worth about $5M, and about half of the family’s wealth was in the firm. Here’s the sticking point: she may own 100% of the business, but she IS the business. It’s her name on the door—she’s the brand, and all the value is in her reputation. Without a solid business owner exit strategy in place, the value of her company could go down considerably after she retires. Will anyone buy the business for $5M if the key employee no longer works there? If not, she’ll have to find another way to get that revenue out when she leaves the firm.

I had a similar client, an attorney (yes, I represent them, too), come to me a few years ago. I performed his business owner exit strategy to make sure he had residual income after he left his practice. He currently owns 100% of the business, but he bought it from another attorney—providing continuity in the business and branding even if some of the other lawyers in the office change. In addition to transferring ownership of my architect client’s business and property into an LLC, I began succession planning and advance planning to make sure she was working toward a specific exit goal.

Untangling the Threads That Your Future Depends on

As one of the few certified exit planning attorneys in the country[1], I have a behind-the-scenes view of all the moving parts in an estate plan. Sometimes, that view isn’t pretty. Consider a husband and wife who came in for estate planning, claiming plots of land in other states among their assets. I took a look at the property record and was shocked to find that one parcel of real estate isn’t owned by an entity but is owned partially by the husband, his father, and an uncle. On paper, Dad, Mom, husband, wife, and uncle could all have potential ownership interests in the property. A Florida LLC owned one property in Connecticut, but there was no backup documentation to establish that my client owns the property (and nothing to say that his wife has an interest in the property). The couple was unaware of all this because the uncle’s real estate attorney set it up—a real estate attorney who never once consulted with his law partner or paralegals to find these holes and potential complications.

Beware the Estate Planning “Specialist”

One of my clients came to me after her previous lawyer told her she needed a bunch of financial products to supplement her estate plan. I looked over her plan, and many of the attorney’s suggestions didn’t make much sense—not for her, anyway. It turns out that the attorney made commissions on the recommended business structures, some of which had an annual cost of a few thousand per year. Another client came to me asking about insurance policies that his attorney said were “vital” to his estate plan. It didn’t take much digging to discover that the attorney was also a life insurance agent.

It’s becoming harder and harder to tell which financial planners want to advise you on your specific goals and which are more interested in selling a product. In the past, it was illegal to call yourself a “specialist” unless you were board-certified in a certain aspect of the trade. That rule was recently changed, allowing anyone with a financial background to refer to themselves as an estate planning specialist—even if they make far more from policy commissions than creating plans.

For me, this is a clear conflict of interest. A personal incentive to sell a particular product to a client creates a bias toward those products—and it’s unethical for an attorney to suggest them if they know of a better way to protect a client. I couldn’t call myself a trusted advisor to my clients if I allowed my business to operate like a store. I serve YOU, and anything I recommend to you is what I believe to be in your best interest, period.

If you know you need to make changes to your documents but aren’t sure where to start, our Florida estate planning team can help you protect what matters most. Email us at hello@yolofskylaw.com or set up a phone call with us today to get answers to your questions.

[1] Certification obtained through the Exit Planning Institute, which is not affiliated with the Florida Bar.