Discussing Planning and Finances with Loved Ones

     Discussing estate planning with clients can be particularly challenging, as people are frequently reluctant to contemplate their death or to discuss the state of their personal finances. This discussion likely is more difficult when it occurs between an aging parent and their adult child. As parents age it, becomes more and more important for adult children to understand the state of their parents’ planning or lack thereof. While such discussions may be difficult, they can be the difference between a smooth estate administration and months of problems in a probate court.

     Discussing estate planning is much more than simply learning whether a Will or Trust exists. This does not mean that parents need to share those documents with their adult children, but it is advisable that adult children know the location of the documents, who is designated to handle their parents’ affairs, and contact information for their parents’ attorneys and advisors. It is also important for adult children to know if their parents have other documents to address lifetime issues, such as Durable Powers of Attorney, Patient Advocate Designations, and Living Wills. This knowledge sets the stage for a larger discussion of the parents' finances. This discussion is important because an organized list of assets, income, and expenses allows the people named under powers of attorney or designated to administer the estate to handle the parents’ finances efficiently. As with the discussion of estate planning, this discussion does not need to include a complete disclosure of the parents’ finances. It should at a minimum result in the parent preparing a list of information that includes:

• Information on all bank and investment accounts
• Information on all sources of income, including annuities, IRA, retirement accounts, and Social Security
• Information on all regular expenses, including utility bills, mortgages, car payments, regular donations
• Contact information for financial advisors, insurance agents, and attorneys

As with the estate planning information, the parents’ should keep this list of financial information where it is readily accessible and the location known to those people designated to make decisions or administer the estate.

     Having a discussion with parents and other loved ones regarding the state of their planning, their finances, and organization is never easy, but the information gained from such a discussion makes all the difference when it comes time to administer an estate or make decisions on behalf of a loved one. It is all too common for client to meet with us to prepare an estate plan after experiencing the results of handling a parent’s estate without a plan. It is important for clients to share this information with their loved ones after executing documents and to address these issues with their parents to avoid future issues.

Matt Ferrara

Using Non-Compete Clauses to Protect the Value of Business Assets

On Tuesday, we discussed how a Buy Sell Agreement keeps the value of a client’s business, frequently their most valuable asset, from evaporating following the owner’s death. While many business owners prepare for physical disasters though the use of insurance and some prepare for ownership transitions with Buy Sell Agreements, most fail to protect their business from a trusted employee who leaves to start a competing business.

Well-drafted, up to date, Non-Compete Agreements (or Non-Compete Clauses in Employment Agreements) can protect the business owner from losing valuable trained employees to competing ventures, but such documents must be narrowly tailored in order to be effective. While the courts enforce contractual agreements, there is a reluctance to enforce agreements when the employer does not compensate the employee in some manner for accepting the Non-Compete Agreement or where the restriction on competition is unreasonably broad.

Fortunately, acceptable compensation for assenting to a Non-Compete Clause/Agreement includes promotion to a new position or access to new information regarding the operation of a particular business. This allows the business owner to implement a Non-Compete Agreement with a small group of key employees whom the owner sees as potential successors without the worry that one of them will then leave to start a competing business.

In addition to requiring compensation to enforce a Non-Compete Agreement, the agreement must not be so broad as to restrict the employee from making a living. The breadth of restriction applies both to geography and to length of time. This means that an agreement that bars working in a similar business within thirty miles of an existing employer for two years is likely enforceable, while an agreement barring employment in a whole industry for ten years will likely be overturned. It is important that the agreement balance the scope of restriction against the time the business needs to recover from the employee’s departure. When considering whether to enforce a Non-Compete Clause courts also examine whether the clause serves a legitimate business purpose or appears to be purely punitive to limit the employee's ability to make a living.

Unfortunately, all too frequently employers only come to us after an employee leaves a business. The owner will want to stop the employee from using key business information, such as processes, client lists, or technological developments to compete in the absence of a Non-Compete Agreement. While Michigan law will protect the "trade secrets" of a business to a certain extent, only properly drafted documents before a problem arises will maximize that protection.

Our clients work hard to build valuable assets they hope will provide for them and their loved ones far into the future. It is important for us as advisors to work with our clients to protect their investment in the company during their ownership as well as establish a plan that provides the client, or their loved ones, with a smooth transition to new owners to best maintain the value of the business. 

Matt Ferrara