For most people, starting a business does not come with thoughts of leaving it. Yet, the reality is that one day, every business owner will leave their business, typically through one of the five “D” reasons: death, disability, divorce, disagreement or distress. While you may not have much control over the reason you leave your business, you can retain some control over how you leave it. By planning for succession, you can ensure that key people are properly educated, trained, and experienced to be able to step into new roles and keep the business running smoothly when it is time for you to step away. As part of business succession planning, business owners should also consider the possibility of one day needing nursing home care, as this could factor into their decisions of exactly what their succession plan includes. Whether you have a small business with just one or two locations in Florida or Minnesota, or own a large corporation with locations around the country or the world, planning for how your business will continue after you leave it is an important part of estate planning. If you have not yet created your succession plan, or have concerns about the plan you have developed, an experienced Roulet Law Firm, P.A. business attorney may be able to assist you. Call our Minnesota office at 763-420-5087 or our Florida office at 941-909-4644 to schedule a consultation and review your plans.
What Is Business Succession Planning?
The process of preparing a business for the future by identifying potential future leaders and developing their skills in anticipation of them stepping into those leadership roles is known as business succession planning. If it is a small business, it may be called continuity planning. This planning serves many purposes, with perhaps the most important being to help ensure the business can continue effectively operating when key people move on, retire, or pass away.
Succession planning often involves identifying the critical roles in the organization and creating action plans for other people to be able to easily assume those roles when the current people vacate them. Other benefits of this type of planning include reducing the business tax burden, maintaining the value of the business’s stock and assets during the management or ownership transition, and allowing the owner to retire comfortably and also continue to provide for family members.
Why Should You Consider Nursing Home Care When Succession Planning?
According to the Office of the Assistance Secretary for Planning and Evaluation’s (ASPE) Health and Retirement Study, 70% of adults who reach age 65 and beyond will need long-term care. While most people would prefer that care take place in their own home, 48% of those will require paid care. This paid care often is in a nursing home.
Nursing Home Costs
Nursing home care is expensive, with the median annual cost of a Florida private room being $100,375 and a semi-private room being $89,297, according to Florida Health Care Association. In Minnesota, individuals who need care in a nursing home could have an annual cost of more than $90,000, per the Minnesota Department of Human Services.
Non-Economic Reasons for Thinking About Nursing Home Care
Many will make an argument that they may never need nursing home care. While this may be true, and Harvard Health research has shown that optimism regarding health can lead to better outcomes, there are other reasons to think about how an individual will pay for a nursing home if they need it.
Even if the individual never needs a nursing home, by planning for it, they allow themselves choices. They can choose the nursing home they would want if it becomes necessary, have the funds set aside to pay for it, and can stipulate to family when or under what conditions they would want to move to the nursing home. Additionally, this planning allows time to ensure they inform their spouse or others of details regarding finances, provide access to accounts, and update estate plans. They will have the peace of mind of knowing they have planned for the worst-case scenario and have done what they can to preserve their independence and dignity, as well as protect their loved ones. This allows the freedom to enjoy retirement, whether they are traveling, taking up new hobbies, or spending time with grandchildren.
How Can You Leave the Business and Have Enough Assets for Retirement?
Business succession planning should set up a business to continue thriving after the owner has left. If the owner is no longer part of their business, where do they find the assets to pay for retirement and potential nursing home care? The business owner has three basic options they can choose from: sell the company, retain ownership while hiring new management, or liquidate the business. An experienced business services attorney at Roulet Law Firm, P.A. may be able to help you explore your options before you decide which one is right for you.
Sell the Company
The owner can sell the company to employees, family, or an outsider. If they choose to sell to family or employees, their business succession planning can include selecting, training, and preparing specific individuals to take over new roles when the owner leaves. This planning will help the employees or family members feel more confident about taking control of the company. The owner will have less control over who is placed in critical roles if they sell to an outsider, but they could still create a plan that serves as a helpful guide to the new owner, suggesting which employees may be best suited to certain roles.
If the owner wants to sell to employees, they may want to consider an Employee Stock Ownership Plan (ESOP). An ESOP allows the owner to sell their stake in the company to the ESOP. This allows them to gain a tax advantage while providing for business continuation. Additionally, if the ESOP holds 30% or more of the company’s stock, the owner may defer capital gains tax by investing the proceeds in a Qualified Replacement Property (QRP), such as bonds, stocks, or certain retirement accounts. The QRP then becomes the owner’s retirement income.
Retain Ownership With New Management
The second option the owner has is to retain ownership of the company while installing new management. This may mean moving family members or employees into new roles or it may mean hiring new management completely. This option would allow the owner to continue to draw an income from the business as they still own it.
However, this option may also make it more difficult for the owner to walk away from the business. If they still retain ownership, they may struggle to let go of control and truly retire. If they do not take their business succession planning any further than this, the business may flounder when the owner eventually dies or becomes disabled or incapacitated and is no longer able to express what they would like to happen to the business.
Liquidate the Business
Liquidating the business permanently closes it. The assets are distributed to shareholders, creditors, and claimants. Whatever is left would be the owner’s retirement fund. Most often, a business is liquidated when it is insolvent and unable to pay its bills, resulting in the owner getting little to nothing. However, even a successful business can be liquidated. This may be an option if the owner does not wish to retain ownership or sell to an outsider and has no family or employees interested in buying or taking control of the business.
Liquidating may also be an option if the business is too small to make enough of a profit in a sale to fund retirement or nursing home care. If a business owner is concerned they will need to move to a nursing home one day and knows that they cannot sell the business, liquidation may allow them to make a bigger profit or to get rid of the assets. This may be an important consideration if the individual is concerned that they may need to use Medicaid to pay for their time in a nursing home.
What Alternatives Are Available to Help Pay for Nursing Home Care?
For small business owners, there may be some concern over whether their business will provide them with enough money for retirement or nursing home care. Their business succession planning may allow the business to continue, but they know that they will not receive an income or that the income they do receive will not be sufficient to cover all their expenses. In these cases, they may want to consider alternatives to help pay for their long-term care. Three options they may want to consider include long-term care insurance, life insurance with a long-term care rider, and Medicaid.
Long-Term Care Insurance
Long-term care insurance is similar to health or life insurance. The individual chooses a policy that provides the benefits they would like or think they will need, pays a monthly premium, and if the benefits are eventually needed, the policy pays for them. However, like automobile insurance, an individual may pay for this policy and never need to use it, which can make the premiums feel like wasted money.
These policies are also more expensive the older an individual gets. Some health conditions may exclude an individual from getting coverage. Additionally, premiums must be current when the benefits are needed. This can mean individuals are paying these premiums long after they retire and if money becomes a concern, they may have to make difficult choices about what to pay.
Life Insurance With a Long-Term Care Rider
A long-term care rider is an optional add-on to a life insurance policy. Not all life insurance providers offer these riders, but they can be beneficial for those who want the protection of long-term care coverage without a separate policy. If this rider is purchased, the family receives the death benefit upon the named insured’s death if the long-term care benefit was not used. If the named insured does require money for long-term care, they can access the death benefit early.
While this option could mean that the family does not receive a life insurance payout upon their loved one’s death, it can be a more cost-effective way of ensuring coverage for long-term care. The individual can also have more than one life insurance policy, so that one has the rider and others do not, ensuring that they have coverage for long-term care while still leaving a life insurance payout for their loved ones.
Medicaid Eligibility
Medicaid is another option that may be available to some individuals who require nursing home care. There are eligibility requirements to apply for Medicaid. The American Council on Aging indicates that single applicants or married applicants when only one spouse is applying can only have $2,000 in assets, with an income of no more than $2,829 per month in Florida. In Minnesota, single applicants or married applicants when only one spouse is applying can have $3,000 in assets but their income must be $1,255 per month or less, per the American Council on Aging.
Individuals who have more than the allowed amount in assets are allowed to “spend down” their assets to become eligible, but the money must be spent on specific expenses. Other assets, such as second homes, can be sold and the money used toward the spend down. However, it is important to note that if an individual wants to instead give a second home or other asset to their child or another loved one, they may need to consider Medicaid’s five-year “look back” period, which means that assets given away within five years of needing Medicaid may still be considered the individual’s asset for eligibility purposes. Therefore, giving away assets of this nature may be better done sooner rather than later.
How Can an Business Services Attorney Assist You?
Owning a business allows you to be independent and creative. However, it also requires planning for the future, and depending on the size of the business, may lead to concerns about retirement income. As you begin business succession planning, thinking about the possibility of nursing home care can allow you to make decisions based on what you believe is right for both the business and your retirement. If you have questions regarding either succession planning for your business or preparing for the possibility of needing care in a nursing home, one of our experienced Roulet Law Firm, P.A. business services attorneys may be able to assist you. Call our Florida location at 941-909-4644 or our Minnesota location at 763-420-5087 or fill out the contact form on this page and a member of our team will reach ou tot you to schedule a consultation to learn more about your options.
If you are not yet ready to schedule a consultation and would like additional information on how to protect your home and life savings from long-term care and nursing home costs, or about estate planning, we have some additional resources for you:
