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Charlie's Exit Plan Legacy: "Let My Spouse Deal With It"

With a Master Brewer qualification from the Institute of Brewing and Distilling in London and an MBA from Notre Dame, Charlie had no problem working his way quickly up the chain of command at one of the country’s leading brewing companies. He was set to become the next CEO at age 45 when the Board unexpectedly passed him over. Unfazed, he set out on his own, combining his brewmaster skills, his business acumen, and his life savings to start his own microbrewery business. In twenty years he had grown Silver Bay Brewing Company to six highly successful locations in major cities throughout the country.

At 65, Charlie figured he was just getting started. Teaming up with a new partner and engineering expert, Frank, they had recently created and patented the “Silver Bay personal brewery” – the world’s first all-in-one brewing appliance for home use. Designed to brew “cold, perfectly carbonated, clear, professional quality beer” in seven days, Charlie and Frank had figured out how to solve the 12 main quality, taste and production problems of homebrewing. Now they just needed to design and implement the right business model to capture its value.

I had never met Charlie. When Charlie’s widow, Carol, came to see me shortly after his unfortunate death, she was distraught over how such a wonderful husband and talented entrepreneur could completely fail to address the Transition and Exit Planning strategies incumbent upon every business owner to deal with throughout their business tenure. But, then, Charlie probably figured he had many years left. He had no way of knowing that, ironically, a drunk driver would alter his legacy forever.

Charlie had what we call a “Let My Spouse Deal With It” Exit Plan. His excuse? He had a Will and a Living Trust prepared by his regular Estate Planning attorney. Yet he instinctively knew there were still other business owner issues to cover. But he was just too busy working “in” the business to possibly have the time to personally deal with this.

Research shows there are 12 principal reasons business owner transitions, successions and exits fail. Each of these reasons impacts the company’s longevity and ongoing annual profitability as well as an owner’s transition and future exit results. This article addresses the third of these 12 reasons:

Reason #3. No Business Owner Estate Plan: You have not realized the difference between a regular Estate Plan and a Business Owner Estate Plan, and you have failed to adequately protect your family and address your family’s needs and desires relative to your business.

Carol was facing a number of challenges coming at her:

  • Two of their children, Dave and Debbie, were each pressing her to name them as successor CEO to Charlie. Apparently Charlie had at one time or another promised this to each of them. Neither was appointed in his Estate Plan. Carol didn’t think either of them were ready to be CEO and so she wanted to initiate an outside executive search.
  • Dave also felt he should be given more stock in the company to pay for the undercompensated “sweat equity” he had invested in the company.
  • Their other son, Dan, was not at all interested in the business and was asking Carol to have the company purchase the shares Charlie had given him.
  • George, the company’s brewer specialist who Charlie had mentored, was never entrusted with any ownership in the company and was threatening to leave due to a recent ownership offer from a competitor.
  • Charlie’s new partner, Frank, was insisting that he be transferred the entire “personal brewery” business or else he would press a claim for significant ownership of the Silver Bay Brewing Company. Charlie apparently had been running the startup venture within the brewing company and hadn’t yet signed the LLC papers to set it up as a separate entity to be owned by Charlie and Frank.
  • Since Charlie had never set up a Board of Directors, Carol felt isolated with no clear business advisors to assist her.

And lastly, Carol had a personal concern of her own. Charlie’s insurance advisor had informed her that, despite his protests, Charlie had lapsed the life insurance policy (he was feeling so good) that had been intended to fund a salary continuation plan for her. She could press for company dividends to help support her lifestyle, but this would sap the company which needed to pay for Charlie’s replacement and was also not tax efficient due to the company’s “C” corporation tax status.

Of course, these issues could have been avoided or mitigated with a Transition Growth Plan (also known as a Succession Plan or Exit Plan) which incorporated the types of Business Owner Estate Planning features needed in the Estate Plan of a business owner.

Clear designation of qualified successors, fully funded life insurance coverage, a proper “S” tax election during an owner’s transition years, a stock redemption program, an active Board of Directors, a “sweat equity” allocation, a child equalization bequest, and a key person performance stock ownership plan are just a few of the components which would have made Carol’s business and family life much more livable. Carol was facing a difficult time in her life.  The last thing she needed was to be forced to deal with these issues.*

*  This Newsletter contains no information that can be used to identify a specific client. So, this illustration was not the actual business in which our specific client was engaged. However, for those interested, the world’s first personal brewing machine has actually just begun to be marketed by a company in New Zealand in 2011. While I believe its overall business model needs further development if it is to be successful, you can see its progress at, written up recently at

Next Newsletter – How Dave’s “Mulligan” Exit Plan failed to provide the asset protection needed for the exit plan he envisioned from the company he’d spent 30 years building.