Thought Leadership on Wealth Management presented by Wealth Preservation Solutions, LLC.
An incomplete plan is worse than no plan.
A few years back, a business owner came in to see me with a problem: He and his brother owned a landscaping and excavation business. He had been Mr. Outside, working in the field, supervising all the jobs. His brother had been Mr. Inside, overseeing the administration of the business. This arrangement worked well for them. They got everything done, the business did well and they stayed out of each other’s hair.
Recently, their lawyer had advised them to enter into a Buy-Sell agreement. The agreement would spell out exactly what would happen if one of them were to pass away. A draft had been written and they were in the process of reviewing it. Their attorney had also advised them to obtain life insurance to finance the buy-out, if one of them were to die prematurely. They took their attorney’s advice, applied for insurance, got approved and paid for it. The draft of the Buy-Sell agreement called for having the insurance owned in a trust, with the attorney serving as trustee. But, they had not yet signed the Buy-Sell agreement or the Trust that went along with it.
Unfortunately, before they could finalize their plan, Mr. Inside passed away suddenly from a heart attack. Several dire complications arose. First, the insurance company paid the insurance out to the attorney as trustee. Since there was no signed trust, the money sat in his escrow account. He could not pay it out to Mr. Outside because there was no trust agreement with instructions for him to follow.