From the October 2006 issue of Boomer Market Advisor • Subscribe!

When a partner dies

Insurance -- We wanted to adequately fund the stock redemption agreement and protect against any erosion in quality of life for our families. We also added a key-man feature to ensure the ongoing strength of our company. We used generous life insurance policies to do it all. We kept ourselves adequately insured against disability as well. Because of the type of Errors and Omissions insurance we had, we didn't have to buy tail insurance to cover the estate against a potential complaint.

Family considerations -- Both my partner's wife and my wife understood the business continuation strategy, how it would work and what they would get, where the money would come from and when they would get it. And, we made sure the business succession plan worked with the deceased partner's estate plan. Our wills and trusts were set to avoid estate tax problems. Because it was a stock redemption agreement, my partner's wife received a stepped-up basis in the stock.

Organization -- We had the paperwork, including a durable power of attorney and health care directive, clearly labeled in our files. Copies were placed with our attorneys. When the time came, there would be no fumbling. And when the time did come, we were ready. The morning my partner was stricken with the brain aneurysm, we were able to fax, without delay, the durable power of attorney and health care directive to his wife in Seattle as she requested.

706 valuation -- My partner and I had informally updated the value of our business annually, but, to determine fair market value, we commissioned a 706 valuation at the time of his death. It is named for IRS form 706. Using it, a certified valuation analyst arrived at a fair market value that the IRS is unlikely to contest. Without it, we, like any business could have faced IRS delays of 10 years or more in the resolution of value.

The team -- Both my partner's wife and I had a team consisting of a CPA and an attorney. This did not imply a hostile attitude. Rather, it was a sign that we both wanted the process to end well. I know that even though we had very clear plans and a good relationship, we needed professionals to help guide us through the process.

We had been partners for more than 22 years. His death was emotionally devastating, but everyone came through it a lot better because of the prior planning we had done.

Stephen Ciepiela is president and co-founder of Albuquerque N.M.-based Charles Stephen and Company Inc. an NFP affiliate. The company provides asset management, retirement and long-term care planning and business succession services.

Insurance -- We wanted to adequately fund the stock redemption agreement and protect against any erosion in quality of life for our families. We also added a key-man feature to ensure the ongoing strength of our company. We used generous life insurance policies to do it all. We kept ourselves adequately insured against disability as well. Because of the type of Errors and Omissions insurance we had, we didn't have to buy tail insurance to cover the estate against a potential complaint.

Family considerations -- Both my partner's wife and my wife understood the business continuation strategy, how it would work and what they would get, where the money would come from and when they would get it. And, we made sure the business succession plan worked with the deceased partner's estate plan. Our wills and trusts were set to avoid estate tax problems. Because it was a stock redemption agreement, my partner's wife received a stepped-up basis in the stock.

Organization -- We had the paperwork, including a durable power of attorney and health care directive, clearly labeled in our files. Copies were placed with our attorneys. When the time came, there would be no fumbling. And when the time did come, we were ready. The morning my partner was stricken with the brain aneurysm, we were able to fax, without delay, the durable power of attorney and health care directive to his wife in Seattle as she requested.

706 valuation -- My partner and I had informally updated the value of our business annually, but, to determine fair market value, we commissioned a 706 valuation at the time of his death. It is named for IRS form 706. Using it, a certified valuation analyst arrived at a fair market value that the IRS is unlikely to contest. Without it, we, like any business could have faced IRS delays of 10 years or more in the resolution of value.

The team -- Both my partner's wife and I had a team consisting of a CPA and an attorney. This did not imply a hostile attitude. Rather, it was a sign that we both wanted the process to end well. I know that even though we had very clear plans and a good relationship, we needed professionals to help guide us through the process.

We had been partners for more than 22 years. His death was emotionally devastating, but everyone came through it a lot better because of the prior planning we had done.

Stephen Ciepiela is president and co-founder of Albuquerque N.M.-based Charles Stephen and Company Inc. an NFP affiliate. The company provides asset management, retirement and long-term care planning and business succession services.

My partner and company co-founder died unexpectedly two years ago, an event that tested our own business continuation and succession planning. I'm proud to say that we passed with flying colors, largely because we started planning for the unlikely tragedy almost from the day we started the business in 1982.

Our succession planning ensured that the surviving partner would have the necessary funding to acquire the deceased partner's half of the business. It ensured that the deceased partner's family would be extremely well cared for. Above all, it ensured the survival of the business.

Here are some basic elements of the plan:

The stock purchase buy-sell agreement -- We chose a stock purchase buy-sell agreement for our two-shareholder S corporation. We purchased life insurance on each other. It would allow the surviving partner to buy the firm, without dispute from heirs or others, in the event of death or disability. Clients and others who owed money to my partner would honor the agreement that transfers the debt to the business. In our case, because of my partner's life insurance and annuities sales, this was an assignment of commission.

Insurance -- We wanted to adequately fund the stock redemption agreement and protect against any erosion in quality of life for our families. We also added a key-man feature to ensure the ongoing strength of our company. We used generous life insurance policies to do it all. We kept ourselves adequately insured against disability as well. Because of the type of Errors and Omissions insurance we had, we didn't have to buy tail insurance to cover the estate against a potential complaint.

Family considerations -- Both my partner's wife and my wife understood the business continuation strategy, how it would work and what they would get, where the money would come from and when they would get it. And, we made sure the business succession plan worked with the deceased partner's estate plan. Our wills and trusts were set to avoid estate tax problems. Because it was a stock redemption agreement, my partner's wife received a stepped-up basis in the stock.

Organization -- We had the paperwork, including a durable power of attorney and health care directive, clearly labeled in our files. Copies were placed with our attorneys. When the time came, there would be no fumbling. And when the time did come, we were ready. The morning my partner was stricken with the brain aneurysm, we were able to fax, without delay, the durable power of attorney and health care directive to his wife in Seattle as she requested.

706 valuation -- My partner and I had informally updated the value of our business annually, but, to determine fair market value, we commissioned a 706 valuation at the time of his death. It is named for IRS form 706. Using it, a certified valuation analyst arrived at a fair market value that the IRS is unlikely to contest. Without it, we, like any business could have faced IRS delays of 10 years or more in the resolution of value.

The team -- Both my partner's wife and I had a team consisting of a CPA and an attorney. This did not imply a hostile attitude. Rather, it was a sign that we both wanted the process to end well. I know that even though we had very clear plans and a good relationship, we needed professionals to help guide us through the process.

We had been partners for more than 22 years. His death was emotionally devastating, but everyone came through it a lot better because of the prior planning we had done.

Stephen Ciepiela is president and co-founder of Albuquerque N.M.-based Charles Stephen and Company Inc. an NFP affiliate. The company provides asset management, retirement and long-term care planning and business succession services.

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