familyownedbusinessblog

Why are family-owned business different and does it matter?

Family-owned businesses are different from other businesses and the business owning families are different from other families.  At the heart of the differences is the purpose and function of business and family. That difference causes stress and conflict which, if not understood and managed, may lead to a failed business and a broken family.

 

The purpose of a business is to provide goods and services to its customers and clients and a return on investment to its owners. Business provides employment and fuels the economy wherever it is located.  Those who rise in the business organization typically are those with talent and competence. Employees compete for better positions within the company and for higher pay and those that get ahead do so on their abilities.

 

The purpose of the family is to raise mature, productive citizens and to provide for the care and security of those less capable.  Families nurture and support all of its members whatever their abilities. Competition is minimized in favor of cooperation and sharing with those with less ability or who suffer bad luck. A member of the family who does not quite measure up is not dismissed from the family as he or she may be from a company. A member of the family remains a loved and cherished member.

 

In a family-owned business, the purpose of the business can conflict with the purpose of the family.  For example, when an unemployed family member is hired by the family business without regard to the skills needed to perform the job position, the business suffers from not having a skilled employee and the family member's self esteem is wakened.  Other skilled employees of the company including other family members are left feeling frustrated and angry.

 

This conflict and others like it are played out every day in family-owned businesses and business-owning families. And the family can never get away from the conflict. It follows the family even when getting together at Thanksgiving Dinner and other holidays. 

 

The resolution to these conflicts require a different model than is used to resolve employment problems or shareholder disputes in other businesses. It requires an approach based on an understanding of the family system and sensitivity to the dynamic of family.  It also requires an understanding of business and the workings of business.  The intersection and interplay of family and business is complex, interesting, and extraordinarily satisfying when done right. 

 

 

 

 

Legislation Amends the Oregon Uniform Trust Code

The Oregon legislature passed several amendments to the Oregon Uniform Trust Code (OUTC) some of which are listed and summarized below:

1. Settlor cannot waive notice to beneficiaries that contain information relating to termination of trust.

2.  Among the current matters that may be resolved by nonjudicial settlement agreement will be added the following:

2.1 Modifying the trust including extending or reducing period of operation;

2.2 Allowing any interested person to file a settlement agreement and provides requirements for filing of, notice of and objections to the settlement agreement. The filing fee is $65 and the fee for filing an objection is $32.50.

3.  Makes clear that a trust is not a charitable trust if the charitable interest is negligible such as would occur in many estate plans where a charity(ies) is named as the final contingent beneficiary in the event there is no one living to take the terminating distribution.

4. An irrevocable trust may be modified or terminated with consent of settlor and all beneficiaries with the approval of the court. This is best practice and now is mandated.

5. A modification or termination of the trust may be approved by the court even without the consent of all beneficiaries if the court finds the trust could be modified if all the beneficiaries consented and the non-consenting beneficiaries' interests are protected.

6. A revocable trust remains a revocable trust even if the settlor becomes financially incapable.

7. Amends the report due to qualified beneficiaries.The trustee report is due 6 months from the date the trust becomes irrevocable to a qualified beneficiary entitled to a specific item of property or a specific amount of cash.

8. The terms of the trust instrument may appoint an adviser for the purpose of directing or approving decisions made by the trustee and absolves the trustee from liability for loss in following the advisers instructions if so required by the trust instrument. The trustee's actions in carrying out the adviser's instructions are administrative in nature. The trustee need not monitor the adviser. 

9. Other changes are mostly housekeeping in nature.

These amendments were sponsored by Committee on Judiciary at the request of the Oregon State Bar Estate Planning Section.

Join us for an employee benefits seminar on 9/17 at Bridgeport Brewing

Our Labor & Employment Group is hosting a seminar entitled "20/20 Benefits Planning for 2010" on 9/17 at Bridgeport in the Pearl.  For more info on the event, go here. 

New: Springing Powers of Attorney

Powers of attorney give the agent the authority to act in place of the principal. A durable power of attorney is one that gives the agent the authority to act in the event the principal is incapable or incapacitated. Such powers of attorney may give the agent a broad scope of authority to do all act and to take all actions that the principal could take on the principal's own behalf(known as General Powers of Attorney). Or the authority may be limited to one or more specific transaction such as authority to complete the sale of principal's residence (known as Special Powers of Attorney).

Powers of attorney may be unconditional or springing. An unconditional durable power of attorney is effective upon execution. This creates a situation in which the agent may take whatever action the instrument permits whether or not the principal is financially incapable or incapacitated. The way is open for abuse. To limit the potential for abuse, it is the practice of many practitioners to limit the authority of the agent of an unconditional durable power of attorney by a letter to the agent stating the agent cannot exercise the agent's authority unless specifically directed to by the principal or when the principal becomes incapacitated or incapable as determined by the agent in consultation with the principal's physician. Other practitioners will advise the principal to have a third party hold the power of attorney until it is needed.

In many states and soon in Oregon, too, there are durable powers of attorney which become effective upon a specified future time, event or contingency. These are called "springing durable powers of attorney". On January 1, 2010, the law in Oregon will permit the use of springing powers of attorney. The written instrument must state the time, event or contingency and may designate a person or persons to make the determination whether the event or contingency has occurred. The instrument may also provide for the manner in which the determination is made. For example, the power of attorney may provide that the agent may make the determination only upon the written determination of the principal's physician that the principal is financially incapable. If no one is designated to make the determination or those who are designated refuse to make the determination, the Act allows for a physician to make it so long as it is in writing.

When effective, the new Act applies to powers of attorney executed before, on and after the effective date.

Powers of attorneys can be an effective tool for the management of the financial affairs of people who are financially incapable or incapacitated. But they have the ability, too, to be misused and abused to the financial detriment of the principal. A principal should only adopt a power of attorney after and in consultation with the principal's lawyer.

Oregon Department of Revenue Reverses Position on Transfers Within 3 Years of Death

Following is a quote from the website of the Oregon Department of Revenue.

In the 2006 Oregon Inheritance Tax Return instructions (Rev. 8-06) for gross estate (page 1, left column), we stated the gross estate includes “...all transfers of property made by the decedent within the three-year period ending on the date of death.”
 
We based our position on Oregon Revised Statute (ORS) 118.160(2) and Oregon Administrative Rule (OAR) 150-118.005(2)(f). In summary, OAR 150-118.005(2)(f) provides that the gross taxable estate includes... gifts made within the three-year period ending on the date of death.
 
We revisited our position on the three-year gifts issue and determined that the rule does not reflect the provisions of ORS 118.007, which connects the Oregon determination of the gross estate to the Internal Revenue Code as it existed on December 31, 2000. Instead, the rule reflects a connection to prior federal law, which did require inclusion of gifts within three years of death in an estate for federal tax purposes. We are removing this requirement from our instructions, eliminating inclusion of the three-year gifts in the gross estate. We will revise OAR 150-118.005 and update you on our progress.
 

Oregon Inheritance Tax: 2009 Amnesty Progam

The Governor signed into a law a bill that directs the Oregon Department of Revenue to conduct a tax amnesty program. Amnesty will be available for any inheritance tax return which had an original due date prior to January 1, 2008.

Oregon disconnected from the current federal law and calculates its inheritance tax under the prior federal law which exempts $1,000,000 from inheritance tax. Oregon does recognize the marital deduction and allows the transfer of an estate to the surviving spouse (or registered domesic partner) without tax liability.

Oregon inheritance tax is 100% of the state death tax credit allowed by 2000 federal law. Oregon does not allow the calculation of taxable estate after the state death tax deduction.

Concepts in Estate Planning: Overview

There are four ways to transfer assets upon death. The first is by contract such as a beneficiary designation which is a contract entered into with a financial institution or life insurance company to distribute the account to a specific beneficiary upon the account owner's (or insured's) death. Other types of contracts may be better known as "paid on death" accounts.

The second way is by operation of law which is determined by how the asset is title such as tenants in common or tenants by the entirety. Tenants by the entirety is only available for married couples (and registered domestic partners in Oregon) which means that upon the death of the first spouse, the property is immediately transferred to the surviving spouse. On the other hand, tenants in common do not have rights of survivorship unless it is so stated on the title; i.e., tenants in common with rights of survivorship. Property owned as tenants in common passes in accordance with the Will. Property owned as tenants in common with rights of survivorship passes immediately to the survivors upon the death. In other words the law governs the transfer. All that is needed is the correct words on the title to make it happen.

The third options is by Will.  A will is a set of instructions to a personal representative and to the court as to the distributions of assets upon death. To be effected, a will must be probated in court for the purpose of verifying authenticity of the will and to provide court supervision in carrying out its provisions. A will may be useful for smaller estate where cost is the primary factor or where a person would prefer the supervision of a court. A will may also be more appropriate for younger families with minor children.

A trust is the fourth option and the recommended option for people over 55 years of age and with moderate to large wealth. A revocable trust does everything a will does and more. A revocable trust is an agreement between the settlor (creator of the trust) and the trustee as to how the trust will be managed, administered and distributed for the benefit of the beneficiary(ies). With revocable living trusts, the creator of the trust is also the trustee and the beneficiary. When the settlor dies or becomes incapacitated, the successor trustee assumes the role and continues to managed, administer and distribute the trust and its assets according to the terms of the trust. Since the creator of the trust is not longer deemed to own the assets because the trustee owns them, there is estate to probate. These types of trusts are useful for tax planning, for second marriage planning, and for incapacity planning.

When designing an estate plan for a family business owner, all of the tools identified here are used to meet the owner's goals and then some more. For more information about how these tools and others can be used to meet the goals and objectives of a family business owner, contact the estate planning lawyers at Ater Wynne.