Consider this real-life situation. A husband passed away suddenly at age 52, leaving behind a stay-at-home wife and two college-aged children. The husband had been the sole breadwinner of the family for years as the owner and president at the hub of a thriving family business. Shock and grief rocked both the family and the business. As the family and the employees struggled to regain their footing, the lack of advance planning severely undercut their efforts to regain stability.
The husband and the wife had started on an estate plan several years prior, but never gotten around to completing it. Court involvement could not be avoided, which meant sizable costs and fees, numerous time delays, and lack of privacy through the administration process. Moreover, a full probate administration was required because the husband died owning several million in assets as his sole and separate property. And the biggest blow to the grieving widow: her college-aged children would be immediately entitled to two-thirds of her late husband’s separate property assets by law. On top of worrying about the loss of her husband, a steady income, and a significant portion of her financial security, the widow was truly afraid for her children’s future. How motivated would they be to work hard and complete their higher education goals when a large inheritance just dropped into their lap? This was certainly not the plan that the couple would have chosen for themselves.
The family business also suffered greatly as a result of the husband’s passing. He had structured and operated the business like a wheel with himself at the center and never gotten around to planning his exit strategy. No one else at the company had the know-how, the training, the relationships, and business savvy to fill the late husband’s shoes. The widow, who knew very little about how to run the business, suddenly found herself at the helm of a sinking ship. The business slowly bled customers, vendors, and lenders as they lost faith in the company’s ability to continue. And yet, the widow could not bring herself to sell the business and salvage what value she could before there was nothing left to sell. She clung to her late husband’s legacy partly out of sentiment and loyalty and partly out of fear of losing the only source of income she had known for many years.
The husband’s passing could not be predicted or prevented. However, the repercussions of his death were entirely avoidable with proper and timely planning. A well-crafted estate plan for the couple would have avoided probate, granted the widow access to all of the late husband’s separate property if needed, and set aside the separate property ultimately for the children but with appropriate holdbacks or conditions. An established succession plan for the business, even in its early stages, would have provided much-needed working capital, groomed family and/or key employees to step into the late husband’s many roles, and guided the widow in making those difficult decisions during the toughest period of her life. Here, Benjamin Franklin’s words ring true: “By failing to prepare, you are preparing to fail.”