To Will or To Trust?

“A potential client of ours wants to will away her Business together with the brands and intellectual properties owned by the Company.

However, all family members are well to do, thus do not need her money. She wants to benefit her loyal staffs including her personal driver and body guard etc.

What is the best way to do this in her Estate Planning. Should she do a Will or a Trust or more?…. ”

What do you think???

If you have similar or even more challenging situations, talk to us for creative and possible solutions!

1. Stephanne Foong, 0122189316 / Stephanne_foong@yahoo.com
2. Nicholas G, nickg.financialdesigner@gmail.com

How to Pinpoint the KeyPeople?

So we have touched a little on keypeople in the previous postings. But do you know who are your keypeople?

Here are a list of questions to help you identify:

1. Whose death or disablity will create a void that could not be replaced from current personnel?
2. Whose death or disability will upset the normal operations of the business?
3. Whose death or disability will impair the company’s credit rating?
4. Whose death or disability will upset the financial control and management of the company?
5. Whose death or disability will mean a loss of customers?
6. Whose death or disability will mean loss of a specialized skill\
7. Whose death or disability will halt or delay a sales compaign or an expansion program?
8. Whose leaving to go to a competitor will hurt you?

After you’ve identified your keyperson or keypeople, the next step is to discuss the person/people’s Value.

KeyPerson in relation to Business Failures

Several studies substantiate the assertion that businesses largely fail because of human shortcomings. Based on the many requests for help in this area that we received, it proves that many BusinessOwners recognise this as a fact and is concerned about losing their key-people.

In a study by Dun and Bradstreet, business failures are generally caused by:

• 42.7% failed because of incompetence
• 18.2% failed because of unbalanced experience
• 17.1% failed because of lack of managerial experience
• 13.3% failed because of lack of experience in a particular line
• 4.3% failed because of neglect
• 2.1% failed because of fraud
• 1.4% failed because of a disaster such as fire, floor or burglary
• 0.9% failed for unknown reasons

Of the 12,000 businesses business failures they studied, 97.7% of the failures were due to known incompetence, inexperience or human frailties.

It seems logical to assume then that if business failures are due primarily to poor management, then business sucesses are due to competent management. In other words, the real source of business profit is not capital or physical assets, but key people with the skill, experience and good judgement to manage the business successfully.

What is a Key Person?

KEY PERSON. What is that? Of course we are not referring to a staff who keeps the keys of your companies. If you are a business-owner, you will know that in every business there is at least one key-person.

Over the years, I have had countless businessowners coming to seek our advice and help in “locking-in” their key people. Since the awareness is on the increase, I thought I might as well share some thoughts on this topic.

From my experience, key person is any employee who contributes substantially to the financial well-being of a busienss. In other words, a key person is one whose premature death or disability would result in economic loss to the business.

What’s in a Business?

A business is often the major asset in a person’s estate. Proper integration of business risk planning and estate planning thus becomes essential to achievement of the business-owner’s long term goals.

Estate planning deals with the creation, administration and disposition of an estate. An estate is the sum of a person’s assets 0 stocks, insurance, real estate, savings, business interests, etc.

Decision-Making Styles

Accessibility to the decision maker is a critical factor in the business negotiations/sales process. We try to assess how decisions are made and which individuals have the real power to say “yes”. A person’s title is not always a clear indication of whether that individual has real decision-making authority.

The following Decision Styles, summarizes some common decision styles that you may encounter. Knowing the type of decision processes your prospect is likely to follow allows you to respond n a more effective manner

Decision Styles

Authoritarian: Owner resolves problems or makes decisions using information available at given point in time with no outside participation

Or

Owner /Executive obtain information which he/she seems important from others and then makes the decision. Other employees/advisors may not be aware as to why information is requested or how it will be used. They only provide information requested and are not part of the process to evaluate alternative solutions to problems.

Consultative: Owner/Executive shares problems/concerns individually with some other employees/advisors and asks for input. After receiving input, owner/executive makes decision that may or may not agree with suggestions of other employees/advisors.

Or

Owner/Executive shares problem/concern with other employees/advisors as a group and asks for group input. After group input is obtained, owner/executive makes decision that may or may not agree with group suggestions.

Participative: Owner/Executive shares problems/concerns with many other employees/advisors – both as individuals and as a group. Owner/executive works with involved parties to generate and evaluate alternative solutions. Owner/executive stresses need to generate a group consensus on how to best solve the problem. Once group reaches consensus, owner/executive accepts decisions and works to implement it.

Which Decision Style do you subscribe to?

Business Continuation-Stabilization-Retirement

Planning for business continuation or liquidation, then is a logical interest to any business-owner. And as the owner(s) grow older, another type of planning becomes important as well – eventual retirement (refer to NickG Financial Designer – http://nickgfinancialdesigner.wordpress.com).

What are some of the questions that a business-owner may ponder?

1. If I decide to retire, how will the business provide me and my family with an adequate income?
2. How can I gradually transfer ownership of my business to my children or grandchildren or to new owners? Do I have one/more heirs sufficiently interested and competent to take over? If not, who will purchase the company?

FACT! A business owner can solve these problems in an affordable fashion. Many business-owners sometimes assume that practical solutions are beyond their financial grasp to the detriment of their company, self and loved ones.

Overview Business Problems & Solutions

Regardless of the phase of the business growth cycle  in which a business is passing, the death/disability of an owner or key employee can be disastrous on the company. Larger multinational companies usually have backup managerial systems to help these businesses to survive key employee deaths.

Medium and small companies typically are not as fortunate. These companies are very dependent on the business-owner(s) or just a few key employees. Because of this fact, many sole proprietors, partnerships and sdn bhd have been forced into liquidation following the death/disability of one of these key people.

Questions upon death/disability:

1. Can the business survive or must it be sold or liquidated in some fashion?
2. How can the spouse and/or children of the deceased/disabled business-owner realize the economic benefits of the entity which generally represents the business?

Planning for business continuation or liquidation, then is a logical interest to any business-owner. And as the owner(s) grow older, another type of planning becomes important as well – eventual retirement (refer to NickG Financial Designer – http://nickgfinancialdesigner.wordpress.com)