Sign North Carolina Banking Last Will And Testament Computer

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(upbeat music) - [Narrator] Welcome to another edition of the PlanWell Podcast hosted by owner and attorney of Cary Estate Planning, Paul Yokabitus. (upbeat music) - I don't know if I've met anybody in business in the last, I'm gonna say six years, who is clearly so committed and driven to their vision for their business, as Paul and I know that's a bold statement 'cause I meet a ton of people. But like he's the rise of his business has been nothing short of meteoric that, like, when I met Paul, he was basically an associate at a small firm. He was made partner, then he changed firms where he was also a partner, then he struck off on his own, and now he's got like, what is it four different offices, Paul? - Yeap. - And like several employees, adding people on it seems like almost every month. And that kind of growth does not just happen people have to have a clear vision and be really motivated and driven towards their goals to have that happen. So, you know, and I also along the way got to make a really great friend and experience somebody that is not just a great businessman, but an incredible family man too. He's had two boys along the way during of course that time, and he's a really devoted father, and all around smart guys. So I am grateful that he let me twist his arm and to come in here today, it's been a minute since Paul came and spoke with us. Without any further ado, I'm gonna hand it over to Paul Yokabitus everybody. - Awesome, thanks so much Scott for the introduction that was great. Yeah, BNI four and a half years ago when I first joined and that's when we met. I was an associate sort of doing all the things, right when you're the low man on the totem pole brand new lawyer. And again I had been practicing about two years at the time, was doing a little bit everything for a small firm here in Cary eventually focused on overall legal planning, which included a lot of business law. I've then started my own firm and niched further down to only doing estate planning, which of course, part of that includes business planning, business succession planning, crisis planning, making sure that businesses don't collapse because of the disability, incapacity or death of their owner. But with business success requires planning. The same is true for business succession, right. So we wanna make sure that if you've got something to protect, and something that's gonna exist without you that the proper mechanisms are in place to allow that to happen. So the first and probably most important aspect of this to understand is that everybody who is an entrepreneur or business owner has kind of an added level of planning importance. Everyone in this world needs basic personal planning, which would be, you know, foundational estate planning concepts like a last will and testament, like powers of attorney, to help make sure that your rules will always control that the people who you want to help you out will have the legal authority to do that if you become incapacitated, unexpectedly or expectedly, or if you were to pass away, again, unexpectedly or expectedly. So, the added level of planning for business owners is that you've got maybe nuanced assets, maybe you've got an ongoing concern, maybe you've got an entity that exists without you, right. And so it's important to understand that these concepts are not unique to business owners. They're just being utilized in a unique way to take into consideration the needs of business owners, right. So where that starts is really understanding what you actually know or what you actually own rather sorry. So do you own a business? Or do you own a job? The difference is does it work without you? Does it succeed you? Is there something that exists without you running the ship on a day to day basis? And so what I mean by that is there's plenty of entrepreneurs, and it doesn't make you any less of an entrepreneur if you don't have a formal entity. And it doesn't make you any less of an entrepreneur if you're working within a larger structure as a 1099 or a sole proprietor. But does that business exist without you? So the common business owner that we run into are gonna be consultants, or realtors or people who truly work for themselves, but they are the business. They are the engine. And so without that person there on a day to day basis the business doesn't make revenue. If the business doesn't make revenue the business doesn't exist, right. So when we conceptualize what is it that you own, there's nuances there but we generally have a situation of, are you formalized in the form of an entity? Do you have an LLC or a corporation? Is it a professional entity? And within that, does the entity own your business assets? Does the entity own your accounts, your equipment? And if that is the case, then you don't own it, right. You own the entity, you own the LLC membership interest, or you own the corporate stock. And the difference or the distinction there has significant impacts on your wealth succession or business succession strategy. Because when you're a sole prop or a 1099, and everything is under your name, DBA or without a DBA, you truly own it personally, right. And so in that sense, it's more likely now there's always exceptions to this rule, it's more likely that what you own is a job. It's less likely that you have employees on payroll, it's less likely that you have a formalized office ownership or corporate assets ownership, more likely that you own everything in your own name. And when that's the case, it's treated a lot like your personal assets for a wealth succession strategy standpoint. So when you own a business, there's a lot of added planning that's needed, right. Because when you own a business, the business is its own thing. If anybody remembers the Citizens United case a few years ago, Supreme Court says that businesses have their own first amendment rights. That's because businesses are supposed to be their own personhood, their own citizenship, right. Now they can't vote, but they have an existence outside of just your ability to do things on a daily basis. So what that looks like is creating mechanisms for control and for authority in your absence. And so sometimes that's transitioning ownership of the actual stock or LLC membership interest if you pass away. And sometimes that's having corporate governance and authorities in place or powers of attorney to be able to vote your shares, to be able to sign cheques, to authorize payroll, those sorts of things if you are unable to. And that may be because of inconvenience, like travel, maybe you're hiking a mountain like Joe Mats. Or maybe you became incapacitated, right, you're in an accident or having forbid COVID, right. We don't really know what the day to day looks like and what sort of risks can come up. But the importance is planning for kind of all the above, right. I can't tell you how many clients I've had, who are the survivor of a business owner, the surviving spouse, the surviving kids of a business that lacked planning, that lacked formalities, that the business no longer exists. And it should be clear why right, because there lacks authority to continue to conduct the business, right. That auto shops die. I've had pest control companies die. I've had personal service companies die. And it just so happened to be that there was a total lack of planning for those circumstances, right. Whether that was the disability or incapacity, the owner or there lacked anybody with corporate authority once the owner died, right. Unfortunately, when you own a business that is a business and is formalized as an entity, it will likely without additional planning be wrapped up in probate. That's just how things work without additional planning. So like my entity is a PLLC, Professional Limited Liability Company. Professional because I'm a lawyer, limited Liability Company, because that's the preferred entity for the way that I run my business. So what I actually own is not these computers and equipment and furniture around the house, I own the LLC, right. North Carolina treats that as personal property, and pretty much every piece of personal property is gonna be part of probate, but for some sort of transfer mechanism to the contrary, right. So when we look at the actual planning that surrounds entity ownership or business operations, it comes in really two different forms. And it's really time bound or circumstance bound. One is gonna be while you're here, but maybe incapacitated on available, the others after you're gone, right. So we usually call the former crisis planning. And that's a situation where unexpected circumstances have happened and the business owner is unable to conduct the affairs of the business, right. So if you think about the things that you do on a day to day basis, if someone else is not able to do that for you, it might grind your business to a halt, right. So there's practical day to day things, and then there's legal day to day things, right. So for instance, I'm planning to take the last week of the month off. So we're planning ahead, sort of practical things that are, you know, on my plate that I do on a day to day basis, like going to the bank, right, going to make deposits. That's a practical thing. But the reverse of that is carrying cheques, right. Does anybody else have signature authority for your accounts or corporate authority to actually conduct the financial affairs of your business. So when we talk about crisis planning, it's always unique to the needs of the business itself, it usually means corporate governance, some sort of corporate resolution that appoints someone like a key man or a key woman to conduct the business affairs, in your absence. That could be in capacity or in convenience doesn't really matter. They have corporate authority to conduct the affairs of the business. The other may be signature authority, right. Are there a joint signer on cheques for the bank account? Do they have a secondary credit card to run expenses in your absence? And then the third is gonna be powers of attorney. And that's gonna be the actual ability to stand in the owners place to act on their behalf, right. As if they were in their shoes. That could be voting shares, could be selling assets, could be selling the company itself. But it generally has to be in place with something like a power of attorney to have that corporate authority if the owner owns everything, if the owner is the 100% member. That's always gonna be unique to you though, right. So if you actually have, you know, a partner, for instance, that's you know, a 50 50 ownership, they may have the same rights as you, and those sorts of advanced planning mechanisms are not as important as it is with a solopreneur. But the point is, planning ahead is sort of your key to success here. You have to sort of conceptualize the day to day without you to be able to orchestrate a plan that carries it out without any bumps in the road, right. The second aspect of this is gonna be business succession. So with business succession, it usually comes in three forms. First is gonna be internal succession. Is there someone within your business who could be your heir apparent, right, transitioning the business internally, to a junior partner or a another employee or general manager. Somebody else who has the business acumen, the day to day operational excellence to be able to carry on where you left off, right. And so when those sorts of objectives are in place, all we want to facilitate that sort of succession, we have to put in place things like buy sell agreements, like business continuity planning, right. Sometimes we're doing life insurance products to basically fund the best sort of transition. Sometimes we're doing promissory notes in the event that a business owner is uninsurable, right, which is not uncommon. But the legal formalities that back that up are basically going to be a written agreement between two parties as to how assets and ownership will succeed you. And it can be on whatever terms you want. That's sort of the beauty of advanced planning, it's effectuating your ideal outcome. And whatever makes sense for the two parties involved. You can also have external buy sells, or maybe you have a competitor who's in the same market as you where you know, come into an agreement to buy the other out if one of you passes away. Dentists do this a lot. Because they're often sole props or sole owners and, you know, would benefit from, you know, basically taking over the practice and the patients of the other dentist. Obviously, this isn't gonna be the case if you're incredibly competitive and not collaborative, but most, at least professional industries require some sort of succession strategy to be in place at least a coverage obligation. Lawyers are no different. We generally own our liability insurance have to have somebody who will at least transition and close all of our files. Now that might not be taking over the business, but it may be sort of, you know, pinch hitting to basically wrap things up if something happens to the owner. The second is gonna be familial succession. And that can happen in a couple different ways. One is gonna be the same sort of mechanism which is a buy sell agreement. Basically a family member is binding to or entering into agreement with the owner, it could be a father or son, mother or daughter or something like that or parent child could be a more distant relative like a sibling, cousin, nephew doesn't really matter but it's more intertwined potentially with the actual estate planning. So it could be a buy sell agreement that basically sets out the terms of the purchase of the entity itself, and more specifically the ownership of the entity. So the corporate stock or the LLC membership interest, and the terms upon which that would happen. A lot of times we're seeing five or 10 year promissory notes that basically pay installments over time from the revenue of the business so that it doesn't require significant liquidity on the part of the buyer upon death. Another obviously we talked earlier about life insurance, that's sort of a secondary liquidity mechanism that you're sort of paying premiums for along the way to fund the purchase price right, Now, normally be sort of an all at once proposition, depending on the amount of insurance. But with familial succession, we can start layering in the estate planning pieces too. So sometimes we'll set up a trust to basically facilitate the succession of an entity within the family. Certainly makes a lot more sense from parent to child where you wanna benefit multiple children, but you don't wanna bifurcate authority amongst more than one child, right. So you basically would move or assign an LLC membership interest into a revocable trust that allows the patriarch or matriarch to continue to run everything during your lifetime. But it allows for a very easy, streamlined succession of the actual ownership and authority immediately upon death, right. So the trustee who's appointed to take over then has the ability to really, you know, put their finger to the wind and see where things are going. Does it make sense to continue to run the business and disperse income to the kids? Does it make sense to transition the business to one of the kids and sort of offset their interest with other assets to the other kids? Or does it make sense to position it for sale? Right. It all depends. But a business is a lot more marketable if there's not gonna be a big speed bump of corporate authority in the meantime, right. So businesses that go into probate are much, much, much like more likely to die than businesses that bypass probate, right. And remember, mentioned earlier, what goes through probate is the actual piece of corporate authority, right. It's the shares, it's the membership interest, right. So when that sort of held up in the notice of creditors period, the filings, the inventory, that usually six to 12 months delay in transitioning ownership over to the beneficiaries. That's more so what will kill a business. Is can your business work and operate with no one in the cockpit for six to 12 months, right? That's the issue that we're trying to avoid is a continuity of control, a continuity of authority to be able to conduct the ongoing affairs of the business. So when we look at the average business owner, they've obviously got personal assets. And so pretty much every business owner has as probably an investment account or checking, savings, those sorts of things that have to do with their individual or joint ownership of wealth. And then we've got the business aspects of it, right, the business checking, savings, those sort of things. So the idea in estate planning for entrepreneurs is to layer in that added level of planning to make sure that all of it works. So especially if you're a business owner, who's the sole breadwinner, you don't want to leave your family with nothing if the business was their way to basically get by on a day to day basis. So this advanced planning as important as it is for business success, it's even more important for business succession to make sure that there's something after you're gone right. Now again, this level of planning is needed more so for people who have an actual business, not so much for people who have a sole proprietorship or independent contract or search type situation. Those who work a lot more like if you're employed as a W2 employee, it just goes away, right. Now you're really looking at wealth succession from an individual capacity to your surviving spouse or kids or whoever your family members are. And they've basically just lost that income source. So you have to kind of look inside and sort of determine what are you actually planning for? What do you own? And then take it according to what's needed, right. So, survey your people, figure out who would be the best choice to basically assist you in the event of unexpected accident, illness or death, to basically carry on the business after you're gone, or to transition whatever you've left to your beneficiaries. But common tools that we'll use mentioned earlier is buy sell agreements. They're often incorporated into an operating agreement or a shareholder agreement. If you have an entity in place, revocable living trust, if we have a sole owner situation that's a lot more important if we have an actual business than it is if we have 1099 or sole prop situation. Again, continuity of control, marketability of the business right away. And then powers of attorney, right. Powers of attorney just allow somebody else to stand in your shoes regardless. So that's gonna be your personal or business side but often we'll put in place limited powers of attorney for business purposes to your key man or woman. And then you'll have a spousal or you know, to another trusted person for your personal stuff, right. So crisis planning while your lives business succession strategies its for when you're gone. (upbeat music) - [Narrator] That's it for this week's episode, make sure you like, subscribe and share. We'll see you all next time. (upbeat music)