Does Your Business Plan for Tragedy?

In October 2020, 42-year-old Jason Hungerbuhler was competing in a monster truck race when his truck overturned, trapping him. The Malabar resident and owner of Florida Native Roofing died at the scene.

The incident not only took a beloved father from his family, but also left the 30-plus employees of his roofing company adrift.

“Jason was the only officer in the company, the only one who could sign paychecks and deal with bank accounts and the only one with the roofing license,” said friend Charles Clary of Clary Construction.

Fortunately, Jason had a large circle of friends in the building industry eager to help his family. Jason’s college-age daughter, Leena, initiated the paperwork necessary for Clary to become an officer of the company. Friends chipped in to make sure Jason’s employees were paid until the changes became official and Clary could sign payroll checks. 

“It could have been worse, but it was not seamless,” said Clary, who has since taken on the mission of raising awareness of the need for business owners to prepare for eventualities such incapacitation or unexpected death.

In this pandemic era, it’s become clear how particularly critical it is for all ducks to be in a company’s row.

Clary uses experience from his multi-generational construction business to explain the right way to approach a topic no business owner enjoys. Clary’s father brought his son and daughter, and eventually his grandson, into the business he launched in 1978, planning ahead every step of the way. When he passed away last August, the family grieved the loss of their patriarch, but were secure knowing the business would continue operating as usual.

“There were built-in layers of redundancy so there was never a stumble in the business,” Clary said. 

The elder Clary knew the company he had devoted his life to would continue after he was gone. His son recommends that every small business owner appoint a person they trust with the authority to sign checks in his or her absence.

“It can be the spouse, a friend or a key employee,” he said. “Make them a valuable part of the company.”

Defining Roles

Megan Burnell knows how critical it can be to have trustworthy employees. Together with husband, Paul, Burnell had opened Mainstreet Philly three years ago in Titusville. A satellite location soon followed in Pt. St. John. When Paul died suddenly at age 54, Megan was left with two restaurants and three young sons. To get through the day-to-day, Burnell depended on her employees.

“I consider my employees part of my family,” she said.

Burnell was able to access payroll, inventory and checking from the first day. Paul, unfortunately, did not have a will, and since he had two adult daughters from a previous marriage, sorting the legal tangles of probate takes time.

Even if there is a will, beneficiaries need to know what to do with the business.

“Beneficiaries would need to continue running the business, determine how to sell the business, or liquidate and close the business,” said Laurel Nugent of the Rockledge law firm of Romaine & Nugent.

Grieving family members are faced with time-sensitive questions:

• Does anyone know how to operate the business? 
• Is the business being sold? 
• How is value determined? 
• Should the business be sold as a whole or should assets be sold and the business dissolved? 
• Is the business under any contractual obligations such as a real estate lease, credit card processing equipment, automobile leases, cellular phone contracts, etc. 
• Is the business location owned by the business, the business owner(s), or third parties?

In situations where a business is owned by more than one individual, it’s critically important to ensure that each owner knows exactly what their rights and obligations are in the event of a death. When one of several owners passes away, the surviving owners maintain their interest in the business. However, the status of the decedent’s share varies, in many cases the heirs of the deceased business owner inherit that person’s share.

“When this occurs, it creates a new issue. Do those heirs want to continue owning part of the business? If they own it, do they participate in the running of day-to-day operations? Do their new business partners know and like them? Would it be better if the heirs sell their interest back to the surviving owners?” Amy Romaine explained.

“If the inherited interest in the business is sold, what is the value of that interest? If the heirs wish to keep their interest in the business, how many heirs are there in the estate? Do any of them know anything about the business or are they intending to be passive owners? If they are passive owners, how are profits and losses allocated?

“In order to avoid some of these issues, it is best to have governing documents for the business, as well as an estate plan, which may include a will and possibly a revocable living trust, for each owner.”

Romaine and Nugent advise business owners to execute an operating/shareholder/partnership agreement, which details, in part, how to address the business after an owner’s death.

Insuring one’s business partners can ensure a smoother transition and secure a path for the survivors to move forward.  

“Either the company itself or the other owner(s) can take out life insurance policies on any of the other owner(s),” Nugent said. “This insurance exists to help buy out the deceased owner’s share. If there is only one owner, then insurance can help cover expenses while wrapping up or selling the business.”

Establishing a succession plan outlines who inherits the business, or if there should be an option to buy back shares.

“Know whether anyone in the family wants to take over or whether you need to have the business set up to be sold or closed upon passing of the owner,” Romaine said.

Talking with family or trusted friends also is a necessity.

“Let them know what your wishes are, see who is interested in taking over the business or helping to manage it,” Nugent said. “Also let them know where they can find the information to run the business so there’s continuity during any major transition.”

A personal estate plan should include any business the individual may own.

“If your business interests aren’t properly addressed, they may need to be probated, even if you have a personal estate plan,” Nugent said. “Proper estate planning helps.”