What Happens If I Pass Without a Will?

What Happens If I Pass Without a Will?

“What will happen to my assets when I pass away?” This is the question that brings many clients into their attorney’s office for initial estate planning discussions. Typically, their estate planning attorney will ask questions to learn about their assets, family and wishes. From that information, the attorney will work to craft a plan that best achieves those goals. Many clients make that initial appointment intending only to create a Will, but soon learn that a comprehensive estate plan is about much more than the contents of a Last Will and Testament. In most cases, beneficiary designations, marital property agreements or trusts become important components for the plan. The purpose of this article is to examine what happens if that meeting never occurs and the individual passes without any estate planning done.

As a preliminary matter, it is important to note that most people have at least done some estate planning even if they have never written a Will or met with an attorney. Typically, this comes in the form of a beneficiary designation on financial accounts, life insurance or retirement assets like 401(k)s. Alternatively, some may own property in a form of title which creates rights of survivorship. While these choices may not have been a part of a comprehensive plan, they do represent decisions which have deviated from the “default.” This sort of uncoordinated and piece-meal planning can sometimes cause more harm than good, especially when beneficiary designations are not updated for many years or are not made consistent with other planning documents. For example, a decades old beneficiary designation on an account will control over a newly executed Will unless the designation is updated. For the purpose of this article’s examination of what happens without any estate planning, we assume these designations were left blank and assets are titled such that there are no survivorship rights.

For residents of the State of Wisconsin, the “default” is found in Wisconsin Statute Section 852.01. In a sense, this statute is the state legislature writing a Will for anyone who has not written their own. The distribution pattern written into this section attempts to grasp what most people would have selected in their Will had they written one, or in a beneficiary designation had they made one. As such, the more “traditional” your family structure is, the more likely the default will align with your actual desires as it is based on the “issue.” The term “issue” in this context of estate planning, refers to lineal descendants, typically children and grandchildren and will continue to refer to such throughout this article.

In the absence of any planning to the contrary, if you did not have any children with anyone other than your current spouse, everything will go to the spouse, if they survive you. However, if you have children from another relationship, then your surviving spouse or domestic partner will inherit one-half of your property other than your interest in marital property or property held as tenants in common with the survivor.

If there are issue, then they shall receive in equal shares any shares not inherited by the surviving spouse. If there is not a surviving spouse, then they shall receive the entire amount “per stirpes,” which is Latin for “by branch.” This means that your children each would receive an equal share, but if one of your children predeceased you, their share would instead pass to any children they had which remained alive, split by whatever number of grandchildren descended from that deceased child. If the deceased child left no issue of their own, that “branch” of the family tree has been extinguished, and the other branches assume their share.
If there is no surviving spouse or issue, then the assets pass to the deceased’s parents. If there are no surviving parents, then the shares pass equally to any siblings of the deceased, per stirpes. Here, per stirpes would again mean we would look down the family line of any predeceased siblings for a beneficiary. If no surviving beneficiaries are found at this point, then the assets pass to the grandparents per stirpes.

Any share that would go to a beneficiary under the age of 18 will be held in a custodial account for their benefit until they reach of the age of 18. This is because minor children are considered incapacitated under the law and cannot manage large sums of money on their own. When the child comes of age, whatever funds are left are turned over to their control.

Finally, if no heirs can be found as close to the deceased as any living descendant of the deceased grandparents, then the property “escheats,” or “goes to,” Wisconsin Statute § 852.01(3) to be added to the state’s school fund. Clients sometimes ask if their property will be taken by the state if they do not have a Will. This is usually what they are referring to and, as you can see, this will only happen if no family can be located out as far as the descendants of the grandparents.

In addition to the rules described above, there are a great number of exceptions and rules for special circumstances which are too numerous to discuss here. For example, someone who murders their spouse is effectively disinherited, and a parent who abandons their child can lose the rights to inherit from that child if they die. There are also rules for how domestic partners inherit from one another.

Those with children from multiple partners, who are in second or third marriages, who have the intent to treat their children differently, or want to provide for someone who is not legally their child, such as a stepchild, often find these default rules vary greatly from how they would want their assets divided. Unfortunately, the court will not hear arguments that the resulting distribution does not match what the deceased would have wanted. The only way to opt-out of the pattern established by the statute is to take affirmative steps during your lifetime.

Assets pass to the appropriate beneficiaries through probate, which is the court supervised process for distributing the assets of one’s estate upon their death and paying their final expenses. A common misconception is that a Will avoids the need for probate, but a Will merely provides alternate instructions for distribution of one’s assets in the probate process. If you have assets in multiple states, it may be necessary to have multiple probates. This is because Wisconsin courts have limited authority to dictate how property in other states transfers. Proper planning can avoid this expensive problem.

A Will also nominates a personal representative to oversee the probate process. In the absence of a nomination, the court will appoint someone to manage the probate process. Often, this is a surviving spouse or a relative who steps up to the responsibility and volunteers to take on the task. Unfortunately, the power the personal representative wields can sometimes attract those who are seeking to abuse the position for personal gain or to go on a power trip. In the absence of a clear direction by you, the court may not be able to tell the difference between these types of people.

Even if your intent matches the default distribution pattern, estate planning can still offer a number of benefits over dying intestate (without a Will). For example, certain types of estate planning can avoid the probate process entirely, saving time and money upon your death. Trust funds are commonly used to prevent beneficiaries under a certain age from gaining direct control of large sums of money. A trustee manages the funds and helps pay for expenses for the beneficiary until they reach the set age and get full rights to the property. Many prefer this option over the possibility that a grandchild would receive a sizeable inheritance upon turning 18, as statistically that money will probably be wasted and gone within a few years. Sometimes, when a beneficiary is known to be irresponsible with money and the problem does not seem likely to improve with age, trusts can hold onto the money for their entire lives.

Outside of what happens to your assets, dying without estate planning could affect who is given guardianship of your minor children. Typically, the Will is where a parent would nominate who would be charged with looking after their children were the parents to die while the children were still minors. In the absence of a nomination, the court system will decide who will take care of them. This likely will be a family member, but the court will have limited information about your child and your family dynamics. Nominating a guardian is often one of the most important reasons clients with minor children schedule an estate planning appointment.

This article only discusses what happens if you pass without an estate plan, but most estate plans will include power of attorney documents, which appoint trusted individuals to make decisions for you in the event you become incapacitated, but remain alive. These documents are critically important, and anyone over the age of 18 should have them in place. If you have questions about power of attorney, inheritance or wish to create an estate plan which distributes your assets on your terms, it may be time to speak with an attorney.

 

Contingency Clauses in Real Estate Contracts

Contingency Clauses in Real Estate Contracts

If you have ever bought or sold real estate, you may be familiar with the contingency clauses contained in these agreements. These clauses offer the option to back out of a sale if certain events occur. The meaning and consequences of these contingencies can be confusing for first-time buyers or sellers. Even those with experience in the field sometimes struggle to grasp the implications of contingency clauses.

To understand real estate contingencies, it is necessary to have a basic understanding of the process in which real estate transactions are completed. When a potential buyer wishes to purchase a residential property, they will present the seller with a signed “Offer to Purchase.” In Wisconsin, the WB-11 form is the standardized contract used for residential real estate sales and serves as a base from which options are chosen. This Offer will contain all of the terms of the transaction and becomes a binding legal contract when signed by the seller. The Offer does not actually transfer the property but rather begins the process, which will culminate in a closing.  At the closing, the documents are signed and the legal title to the property is transferred. Between acceptance of the Offer and the closing, the parties can agree to change the terms using an amendment, but unless both sides agree on a change, the terms in the original signed Offer will control.

The Offer lays out a series of responsibilities and deadlines for each party. These responsibilities generally consist of providing documents, making inspections and coordinating mortgage financing and title insurance. If a party does not timely complete their duties under the Offer, they are in breach of the contract. Depending on the situation, this may allow the other party to retain earnest money, which is the deposit to the seller that represents the buyer’s good faith to purchase, sue for monetary damages, or sue for “specific performance,” meaning they will request a judge to order the breaching party to fulfill their obligations. Often, the legal costs of pursuing these remedies deter the non-breaching party from pursuing them, but the potential for such legal action makes it inadvisable to assume that if something goes wrong, or if you change your mind, you can just walk away from an accepted Offer.

Because key information is sometimes not known when an Offer is accepted, most contracts contain contingencies which state that if specific events occur, then a party has the option to walk away without being in breach. If a contingency is triggered, the party backing out of the deal is not breaking the contract because the contract itself states they would not have to go forward if that event occurred.

Although some types of contingencies benefit the Seller, generally, Sellers prefer Offers with fewer contingencies because contingencies create more opportunities for the deal to fall through, leaving them with the unsold property. Buyers typically want more contingencies as it gives them flexibility if, after the Offer is accepted, something happens that makes them no longer interested in purchasing the property. What contingencies are included can be an important part of negotiations prior to the acceptance of an Offer.

The WB-11 form contains many options for contingencies. Most are preceded by a box which is checked if that contingency is to apply. If the box is not checked, that contingency is not part of the Offer. Outside of the contingencies included as options in the WB-11, additional terms may be added which make the Offer contingent upon other circumstances. With proper drafting, an Offer can be made contingent upon almost anything.

There are too many possible contingencies to describe them all here, but some of the more common contingencies are described below:

Financing Contingency. This contingency is common when the Buyer requires a mortgage to be able to purchase the property. If the Buyer is unable to obtain a mortgage for a set amount and at a set interest rate, and the Seller is not willing to offer them financing on the same terms, then the Buyer can walk away from the deal without being in breach.

Closing of Buyer’s Other Property Contingency: This contingency allows a Buyer who is in the process of selling another property, usually their existing home, to back-out of a deal if the sale of their old property does not close by a certain date. This can be very important to a Buyer; without it they may end up being forced to either breach the contract or own two homes.  Be sure to carefully think through the dates and deadlines between the two transactions when using this contingency. Even if you already have a binding Offer on your old home, consider this contingency in case the deal falls through.

Inspection Contingency: This contingency allows the Buyer to have an inspector examine the property. If they discover a “defect,” as defined by the WB-11, the Buyer may be able to back out of the deal. The seller is typically given the right to “cure” the defect to prevent the sale from falling through. For example, if this contingency is included and an inspector identifies issues with the electrical wiring, the Buyer would have the right to walk away unless the Seller is willing to pay for the issue to be corrected.

Appraisal Contingency:  Under this contingency, the Buyer may hire an appraiser to determine the value of the property. If the appraisal is less than the purchase price, the buyer can back out of the Offer. Appraisals are expensive and take time, so consider whether it is worth the expense and whether there is enough time between acceptance and closing to receive the appraiser’s report.

If you have questions about what contingencies are appropriate for your real estate transaction, how contingencies in an existing sale may interact, or how to draft custom contingency clauses, you should consult with a real estate attorney.

 

Best Practices for Using Volunteers in Your Wisconsin Non-Profit.

Best Practices for Using Volunteers in Your Wisconsin Non-Profit.

The great majority of work performed by non-profits comes from unpaid volunteers. While volunteers can be vital to helping a non-profit reach its goals, their presence raises certain risks that leaders of non-profit organizations should be aware of to craft effective policies for their recruitment, management and retention.

The typical non-profit organization in Wisconsin is simultaneously subject to two sets of laws. The entity is organized under state law, specifically Chapter 181 of the Wisconsin Statutes, titled “Nonstock Corporations.” However, an organization’s tax-free status is controlled by federal law, specifically Section 501(c)(3) of the U.S. Internal Revenue Code, which generally requires the organization be operated for the sole purpose of pursuing one of several listed causes recognized as deserving tax-free treatment. The many requirements of these laws are beyond the scope of this article, but they affect certain aspects of volunteer management practices.

Recruitment:

Before you can manage your volunteers, you must recruit them. Consider how potential volunteers are screened and appropriate policies are put in place. A bad fit can be more trouble than they are worth, and someone with bad intent or ulterior motives can be disastrous both to the organization and to the cause it is trying to help. Outside of the damage an ill-intended individual can cause directly, bad press from being associated with that person can do lasting damage to an organization’s reputation.

The screening process can be as simple as an application form and/or interview asking relevant questions. A more thorough screening may also include background checks. The extent of the screening process should be commensurate to the level of trust that will be placed in that person. Volunteers entrusted with responsibility over expensive goods which can be stolen or vulnerable people who can be abused should be screened with extra caution. These concerns must be balanced with making volunteering as simple and easy as possible, so volunteers do not lose interest when faced with a daunting application process.

During recruitment, take steps to ensure no improper biases or discrimination are applied to volunteer selection. Discrimination against protected classes is generally illegal, even for non-profits. Among the classes protected by anti-discrimination laws are: age, sex, religion, national origin, race, disability or genetic status. Many of these laws are written with the employment context in mind, but there is legal precedent for their application to unpaid volunteers in certain circumstances. Although the law is unclear in many cases, the safest route is to assume anti-discrimination laws will apply. Some types of organizations have limited exceptions to these rules. For example, religious organizations have a narrow window allowing discrimination on the basis of religion. Discrimination laws are complex and you should consult with an attorney if you believe a decision or practice could potentially expose the non-profit to legal action. Even if a form of discrimination is technically allowed under current law, an organization known to discriminate against certain groups may lose moral credibility, which can translate to reduced donations. Additionally, the non-profit risks losing out on federal funding or contracts.

Another concern with incoming volunteers is their classification within the organization itself. Non-profits in Wisconsin can either have members or not have members. If you are unsure whether a non-profit has members, the Articles of Incorporation filed with the State of Wisconsin will indicate the classification. If an organization has members, they may have voting and other rights to control the organization. If the non-profit is a member organization, be careful to be clear who is a member with these rights, and who is a volunteer.

Training and Supervision:

Once a non-profit has recruited volunteers, they must be trained and supervised to perform their duties. A volunteer orientation process promotes consistent training among volunteers and can ensure vital information is passed to everyone working on behalf of the organization. Key policies and procedures, as well as a mechanism for volunteers to get answers to any questions that may arise during the course of their duties, should be implemented and addressed. While certain training procedures should be uniform across all volunteers, job specific training should also be given based on the task the volunteer will be performing. Job duties may change over time, so updates and refresher training will likely be necessary, even for frequent volunteers.

In addition to initial training, a volunteer handbook can serve as a reference for important procedures and rules for volunteers. Detailed handbooks can also help protect the organization from liability should a volunteer do something against the organization’s policy. Some things a volunteer handbook should include are: non-discrimination and non-harassment policies, confidentiality rules, policies and permission statements for information and images of volunteers in promotional materials, policies for working with certain vulnerable groups, attendance, scheduling, conduct expectations and emergency procedures. This list is non-exhaustive and most non-profits will have unique policies to address their specific functions and organizational structure. It is important the handbook reflect current practices for the non-profit. Thus, it should be reviewed and updated regularly. Changes should be identified to existing volunteers so they are aware of the new expectations and they should be provided with the new handbook.

As discussed in the above “Recruitment” section, a non-profit should exercise care to avoid discrimination against or by volunteers. Monitor both supervisors and other volunteers for signs of discrimination or harassment. Harassment can include continuous jokes or jeers directed at a volunteer’s expense, or otherwise creating a hostile environment for them to perform their volunteer duties. Outside of legal concerns, not allowing such behavior can help keep volunteers eager to return and be productive in their duties.

Liability Protection:

When a volunteer makes a mistake, becomes injured, or otherwise takes action which gives rise to a legal claim, there are two major sources of protection for the organization and the volunteers themselves: state law and insurance.

In Wisconsin, a volunteer who provides services to a non-profit has limited liability under state statutes for damages arising from their acts as a volunteer, subject to certain exceptions including, but not limited to, violations of criminal law, willful misconduct if they are also an employee of the non-profit, or if the act was in their capacity as an officer or director of the organization.

Given the long list of exceptions, it is safest to procure insurance. Insurance also can help pay for the expenses of a volunteer who is injured while performing their volunteer duties. Many organizations purchase volunteer liability coverage to protect themselves and their volunteers from the costs of personal injury or property damages stemming from their volunteer duties. Auto insurance should also be considered if the volunteers will either be driving or riding in a vehicle as part of their volunteer duties. Wisconsin has minimum insurance requirements for all drivers, but these amounts are not nearly enough to cover expenses incurred in all but minor accidents.

Incentives:

By definition, volunteers should not expect payment in return for their services. Regardless, many non-profits desire to reward their loyal volunteers with some token of appreciation for their hard work. This can create issues with accidently classifying the volunteers as “employees,” or with the tax-exemption of the organization under federal law.

The tax-free status of an organization can be revoked if the organization is providing a “private” rather an “public” benefit. This can happen if monetary or other valuable rewards are given to volunteers. Likewise, the classification of a volunteer versus an employee is in part based on whether they receive anything in exchange for their work. Non-cash benefits to volunteers are allowed to a point, but beyond this hard to define threshold, problems can quickly accumulate. One thing is clear, avoid giving cash or gift cards to volunteers if the non-profit is looking for ways to reward its volunteers.

The laws regarding volunteering and Wisconsin non-profits can be complex and you should consult with an attorney if have questions about recruitment, training and supervision, liability protection and incentives for your non-profit.

 

Accounting for Digital Assets in your Estate Plan

Accounting for Digital Assets in your Estate Plan

Like many things rendered obsolete by the progress of technology, older estate plans may not adequately address the realities of the digital age. In the last 15 years, the Internet has become commonplace and many transactions are now recorded electronically or completed entirely online. Most people now manage their finances, business and personal lives through the Internet, and a growing number of organizations are going “paperless.” With this progress came a new form of asset which old laws did not properly address: digital property.

Even those who view themselves as digitally removed probably have some important connection to a digital asset. For example, someone without e-mail, social media accounts and who does not make online purchases, may still store important family photographs or videos on an online or other electronic platform. While of minimal monetary value, such digital assets can be important emotionally. Inversely, some individuals’ lives have become so entwined with their digital presence, making sense of their finances or business dealings would be impossible without full access. Ensuring the ability for loved ones or caretakers to reach such data has become a legitimate part of modern estate planning.

The rise of digital technology developed more quickly than the law, so historically, survivors and caretakers had no clear right to access the digital assets or accounts of a deceased or disabled loved one. Technology company user agreements controlled and were usually designed to provide security and privacy for the company’s living users and often only recognized the rights of the original user. This made accessing vital information a headache at best, and impossible at worst, when the original user was no longer alive or able to manage their own affairs. Adding to this confusion was the fact that few users ever actually read or understood these policies.

In response to the lack of appropriate laws for digital property, the Uniform Law Commission created model guidelines which were presented to the states to pass into law. Wisconsin based its Digital Property Act on these uniform rules but made several changes before passing it into law in 2016.

The Wisconsin Digital Property Act only applies to users who reside in Wisconsin or resided in Wisconsin at the time of their death. Under the Act, digital property means “an electronic record in which a person has a right or interest” but not the underlying non-electronic property. This can be understood as information about you, created by you, or purchased by you that exists digitally. This includes your e-mail, social media, photo and video sharing, gaming, and online information storage accounts. Internet shopping sites like Amazon or eBay may include credit balances in your favor; and accounts like PayPal can hold funds for use in online purchases. Digital media accounts, like iTunes, often store valuable rights to songs, subscriptions, e-books, or other media. Some individuals may even have websites, articles, domain names, online stores or blogs they own or manage which generate revenue. Personal accounts tied to businesses can contain client information, mailing lists and valuable newsletter subscriptions.

The Act automatically provides limited access to digital information to individuals named in estate plans and power of attorney documents upon their written request, but the Act takes an “opt-in” approach for a user to grant rights to the actual content of digital communications. This means the law allows users to decide how their online information will be granted but does not do so automatically. Users can opt-in by either completing an “online tool” or specifically giving the rights to individuals named in an estate planning document, such as a will, trust or power of attorney.

“Online tools” are options built into some websites for opting in, but not all websites contain this feature. As an example, Facebook’s online tool is called a “Legacy Contact” and can be accessed under the security menu on an account. Google’s online tool is called an “Inactive Account Manager” and can be set to notify a designated contact and allow them to download certain types of data.

Wisconsin uses a “tiered approach,” meaning a designation in an online tool takes priority over a conflicting designation in an estate planning document. Because of this priority issue, you may wish to discuss with your estate planning attorney how to coordinate use of these features to reach your desired outcome.

If you opt-in under either method, the law requires the website provider to allow the designated person access and management of the digital property. This allows them to archive important information or photos, maintain & close accounts and transfer any credits or income generating assets. If you do not opt-in, the user agreements govern and usually do not allow such access or management.

In addition to creating the legal authority for someone to manage your digital assets by opting-in, it is important they have the information necessary to fulfill their role. A simple step in organizing your digital estate is making a list of your digital assets and how to access them. This includes login usernames and passwords. However, make sure to also consider access to accounts with additional protections, like two-factor verification or encryption programs. The list should be stored in a secure, but accessible, location, and someone you trust should know where it is kept. Once made, the list should be updated periodically. Also, this list should not be included in your last will and testament, as this will be filed with the court after your death and becomes available to the public.

An estate planning attorney can assist you with understanding and organizing both your digital and non-digital estate. If you already have an estate plan, consider having it reviewed to make sure it covers digital property. Most estate planning completed by a Wisconsin attorney in the last several years will include these digital estate provisions, but older documents are likely silent on the issue or may address it in a way inconsistent with the 2016 law. The digital revolution has changed many things, but for estate planning, the old rule still holds true: a little planning up-front can save a lot of stress and expense for your loved ones down the road.

 

Buy-Sell Agreements: Working for the Best and Planning for the Worst

Buy-Sell Agreements: Working for the Best and Planning for the Worst

However optimistic you are about the future of your business, the reality is at some point your business will either end or change hands. A thorough business plan takes this into consideration. The best-case scenario is after many years of success, your business partners or a successor will fund a comfortable retirement for you by purchasing your interest in the business. The worst-case scenarios generally involve death, disability, divorce, disagreement or bankruptcy of you or your business partners. From the best-case to the worst, both you and your business may benefit from having a Buy-Sell Agreement in place.

Buy-Sell Agreements are sometimes called “business pre-nups” because they serve a similar function to the agreements soon-to-be married couples enter into which direct how their assets would be divided upon their death or divorce. Buy-Sell Agreements are binding contracts which spell out who business owners can sell their interests to, on what terms, and how the price will be determined. When the business is going well, and all the owners are getting along, it is much easier to agree on equitable terms than when tensions are high at the time of a buy-out and parties have little incentive to negotiate fairly. By discussing issues in advance and setting the ground rules for what happens upon the occurrence of certain events, business owners can avoid future arguments and limit the potential for expensive litigation down the road.

Starting with the best-case scenario, a voluntary retirement from a successful business, Buy-Sell Agreements can help define an exit strategy and ownership succession. The value of a business is not always clear and can be calculated in different ways with a wide range of potential results. The Agreement can state which valuation method will be used for the exiting owner’s share of the Company. The Agreement can also help define the structure of the exit to minimize taxes or allow them to be paid over time. For business owners hoping to fund a large part of their retirement using these proceeds, not knowing their buy-out price or tax burdens in advance can seriously jeopardize their ability to plan for retirement. These Agreements also are helpful in getting owners to think about who their buyers may be. As the Baby Boomer generation is entering retirement age, there will be a lot of small business owners looking to sell, and the market for willing and able buyers may be strained. If a buyer must be found unexpectedly or on short notice, the purchase price will likely be much lower than the true value.

As great as you and your business partners may get along now, it is possible at some point business or personal disagreement will rise to the level where one of you will be forced to leave the business. Business owners may also unexpectedly exit the business for reasons like a desire to focus on their families, illness of themselves or a loved one, or moving out of the area. In these situations, you and the exiting owner may have different opinions about what fair buy-out prices and procedures would be. In the absence of an Agreement, these disagreements can escalate quickly and may result in litigation. By having the Agreement in place, the emotional impact of dispute and the tendency for people to believe they are being treated unfairly is checked by being able to look to an agreement everyone consented to beforehand for how the exit will take place.

Even if you and your business partners are lucky enough to always agree, events outside of your control, such as an owner’s death, divorce, disability or bankruptcy, can lead to uncertainty as to who ends up with control of the business. When an owner dies, his or her share passes to their heirs. This often results in the spouse or children of a deceased business partner either wanting to participate in the business or, more commonly, wanting their proportionate share of the business earnings without having to work for them. Divorce can lead to a similar situation, and a court may order the business interest divided between divorcing spouses. If a business owner becomes disabled and unable to contribute to the business, their interest may become a burden on the other owners. Buy-Sell Agreements also often contain provisions for what happens if an owner becomes involved in criminal activity or becomes mentally unstable. If a business partner goes bankrupt, potentially for reasons having nothing to do with your business, creditors may be able to pursue their business interest to pay off what they are owed. Each of these situations result in either an unwanted business partner or an unexpected party demanding the value of the interest they now possess. A Buy-Sell Agreement can give the remaining owners rights to force out owners who have become a liability or purchase interests at a determined price to prevent heirs, ex-spouses, or creditors from gaining control. These goals are often accomplished by terms which give the remaining owners the first option to purchase any interest transferred from an owner for a price determined in the agreement. The source of funding the buy-out can vary, but is often a life insurance policy, which ensures available funds to buy the interest from the owner’s heirs.

Whatever the future holds for you and your business, a Buy-Sell Agreement can help make sure you are prepared for it. If your business already has a Buy-Sell Agreement in place, it may be time to review the document to make sure you understand it and that it still meets the needs of your business. An Agreement drafted for a start-up may no longer suit a business which has grown or added new business partners.

 

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