Business Succession Planning: Common Mistakes Made By Business Owners

November 10, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

Despite having millions of small business operating in the United States, many of those small-business owners don’t have the faintest idea on how to formulate a proper business succession plan. This has easily become one of the major concerns of many owners; how to coordinate a proper transfer of their business to the next generation, or to their estate.

Taking the proper measures to ensure a smooth transition is vital for every business, however it is also commonly overlooked, or more often than not, it is commonly misapplied. The following are the four (4) most common mistakes business owners make when attempting to create a succession plan.

1. Failing to plan is planning to fail: Failure to plan: One of the primary reasons why many fail to have a plan is because of laziness. Most do not consider it important enough to take the time to complete. However, the effects of non-planning will prove to be burdensome when it comes time to retire, or upon your death. Take the time to sit down with a professional and discuss your options – it can even possibly save you money down the road.

2. Failing to incorporate the Estate and Business plan together: A common misconception with owners is that upon their demise, they feel the assets owned under the company would automatically be distributed to their surviving spouse. Although that may have been the wishes of the deceased, that is not how it works in reality. A carefully drafted business succession plan would include such concerns and ensure the wishes of the owner are fulfilled.

3. Failing to appraise the business: Similar to knowing the value of your home, it is just as important to know the value of your business. This is especially true if your succession plan involves the sale of your business, or if it is passing to your heirs, as the value would need to be noted for estate tax purposes.

4. Failing to create an Estate Plan: No business succession plan can be complete without having a proper estate plan. If it is your intent to have the funds of the company transferred to your heirs, the most efficient manner for it to occur is through your estate (i.e. Revocable Living Trust). Furthermore, it is equally important to have a contingent plan in place in the event you become disabled or unable to manage your business and/or financial affairs. Who would run the businesses, or make the decisions? Establishing a Power of Attorney to handle these affairs is necessary for your company to continue its operations.

It is widely acknowledged that business owners have a busy, compact, and hectic schedule. However, by not taking the proper steps of setting up an effective succession plan, business owners are simply hurting themselves personally, the business, and their heirs. Proper planning can take a few hours of an owner’s time, but it can save years of headaches afterwards. Always be sure to consult with a trusted professional who can assist and guide you through the process, and be better able to meet the goals you set out for your business.

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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To Will or Not To Will…

July 7, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

A few weeks ago I was approached by a client who stepped in to discuss his estate plan. He began the meeting by telling me he wanted to create a Shariah compliant Will that will ensure his assets are distributed pursuant to the terms given to us by Allah s.w.t. Before proceeding with his demands, I asked him if he was fully aware of the benefits of creating a Will and whether he knew he had other options.

This scenario is all-too-common. Under the right circumstances, there is nothing wrong with drafting a Will as part of your Estate Plan, however, prior to taking any steps, it is important to be informed on what you are drafting and why.

A Last Will and Testament is very commonly used, but many are not sure what it exactly entails. Although it is very easy to draft a will, be sure to consult with an Attorney on the benefits and drawbacks of actually having one.

Prior to any plan it is always important to know why you should even have one. For any Muslim, having an estate plan is not discretionary, but rather mandatory. Narrated by Ibn Umar, Prophet Muhammad (s) once said: “It is not right for any Muslim person who has something to bequeath to stay for two nights without having his last will and testament written and kept ready with him.”

The following are certain factors, or facts, that should be considered when drafting a will.

1. Every Will must go through Probate: Probate is a court system that determines the validity of your will and helps facilitate in the process of distributing your assets. Note:  assets cannot be distributed until this process has completed. On average, the entire probate process can take between four-to-six months. 

2. Costs: Here is a very common misconception concerning a Will. “I got a Will because it is cheaper than a Trust.” Do not fall into the trap of thinking a Will is the best estate planning tool just because it is the cheapest. I have heard many clients proudly claim they created their Will for free online. But what they don’t realize are the costs that are associated with the Will after they die. Probate costs are not cheap. On average the entire probate process can cost between 3-5% of your estate.

It is important to realize that when discussing your estate planning options, it should not be dependent on how much you pay today, but rather how much your estate will pay at the end.

3. Public Information: Depending on how much value you place on privacy, the administration of a Will provides you with none. Once your Will is filed with the court, it becomes accessible to the general public.

These are some of the issues that you should consider when contemplating your estate plan. Fortunately, there are other options available for you to consider that can be cheaper and more effective. That is why it is important to speak with an Attorney to discuss your options and more importantly to discuss the options on how best to effectuate the distribution requirements pursuant to Shariah law. With the proper planning, you will have set up the best method that suits your individual needs, saves you money, and satisfies the requirements of Allah (s.w.t.)

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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