Entrepreneurs: Protect Your Family In Case Of Your Death Or Disability

By David Wimer, business advisor and author of “Insight: Business Advice in an Age of Complexity“

No one likes to think about the impact of a crisis in their business, but as entrepreneurs we must. When you become an entrepreneur, there are some significant economic implications for your spouse and your heirs.

Here are some simple steps that you can take right now to protect your family in case of your death or disability:

1. Minimize family liability exposure.

While you may need to be personally liable for some or all of your business debt, do everything in your power to keep family members from becoming personally liable, too:

– Make every attempt to avoid having your personal guarantees convey to your spouse or other family members.  Your attorney can help you here.

– Carry life, disability and burial insurance sufficient to cover all personal guarantees and at least 2 years of your income.

2. Have a family attorney.

You need to have an attorney whose sole responsibility is to look out for your family in a crisis.  Your corporate attorney will have primary responsibility to look out for the business and there is always the possibility of conflicts of interest.

3. The Documentation Pack.

You should maintain separate copies of:

• All legal business documents
• All monthly, quarterly, and annual financial statements
• All tax returns
• Bank statements
• Employment contracts for key employees
• Your succession plan (i.e., who you want to manage the operations of your business if you are no longer there)
• Contracts with key vendors
• Contracts with key customers
• Computer passwords, bank passwords, safe combinations

These documents should be kept in a safe deposit box at a local bank where your spouse/heir and your family attorney can have immediate access.

4. Include your intentions for your business in your will.

Your will should specify not only who gets what with respect to ownership in the business, it also needs to spell out what responsibilities each heir may or may not have.

5. Do a “meet and greet” with your spouse.

Set up meetings to allow your spouse to get to know your senior management, business attorney, CPA, and any other key business advisors you may have.  If something happens to you, your spouse will have to rely on these people to work through the transition in ownership. Those relationships do not have to start from scratch.

6. Keep your spouse informed.

The real problems tend to occur when the business owner dies or becomes disabled.  Their spouse (or other primary heir) becomes, or acts as, the owner.  However, unless the spouse has been kept up-to-date with what is going on in the business, including all the problems, he/she is not going to be able to make intelligent decisions, especially during the difficult transition times.  Therefore, your spouse or other primary heir should attend your monthly, quarterly, and annual meetings so that they know what is happening. You should also sit down with your spouse at least quarterly to review the details of your business.  He/she is essentially an investor in your company and should be treated with the same respect and confidence you would treat any major investor.

7. Put a Power of Attorney in place.

This PoA needs to make clear what role your spouse or other heir(s) will have with regard to the business.  This PoA, or a separate one, also needs to discuss the handling of any medical issues requiring the input of others.

While you, as an entrepreneur, cannot totally insulate your family from the impact of a business crisis, we believe you owe it to your family to take what steps you can.  Our experience has shown that well over half of the serious business problems related to death or disability that we deal with regularly would have been avoided if the owner had just taken the time to put these recommendations in place.

David Wimer is Founder and Managing Principal of David Wimer Advisors, LLC where he works with privately-held, family businesses to navigate business transitions and prevent financial crisis.  He is the author of “Insight: Business Advice in an Age of Complexity“