I spent most of my career working for law firms that represented small businesses. Some of those “small” businesses did millions in sales and had lots of complexities. But, they typically had “Mom & Pop” owners.
Mom and Pop are odd clients. They love to tell friends and family that they would never make a move in business without consulting their “family lawyer.” Oh, if only these statements were true. I am reminded of this based on a recent conversation with a colleague who finds herself having to assemble a string of family business entities never coordinated to work together.
So, in the 1970s when this region still “manufactured” sportswear Mom and Pop got into the business. They bought a “plant” and made stuff which would have been shipped to New York’s garment district. After a few years of Schedule C sole proprietorship, the accountant told them they needed to incorporate. That’s when they found their “lawyer.” He formed a corporation and told them they should have the building owned by a separate entity. They complied.
In the 1990s along came NAFTA. The rag trade had been declining in Pennsylvania for years but NAFTA was the final tocsin. Time to move production to Central America or Vietnam. By this time, the kids were in the business so they were dispatched to “make deals” with foreign manufacturers. Meanwhile, the “plant” was leased to an auto repair company owned by another couple Mom and Pop knew from church. Mom and Pop kept 900 square feet as “headquarters” for the sportswear company. The days of 70 employees and threats of unions were now ancient history. But, with just eight employees, the business still flows.
Twenty years ago, they called “the lawyer” and said they needed an estate plan because they were going on a cruise. At the time the most you could pass to the next generation without paying federal estate tax was $1.5 million. So, the lawyer put together an estate plan intended to minimize the estate tax. Mom and Pop came into sign it on the way to the ship. They have no idea except the survivor of them gets it all until he/she dies and then “things happen” to keep Uncle Sam at the door.
Tell this story to any lawyer who represents Mom and Pop and they will start nodding. In 2026, because our government runs so efficiently and tax revenue is not really needed as it once was, the estate tax exemption is $15-30 million. (Sorry, could not resist). Mom and Pop are well off, but the protection they needed a generation ago from estate tax is no longer an issue. Meanwhile, there are lots of loose ends. In 1975 they formed two corporations; one for the business and one for the “plant.” They eached owned 50% of each entity.
The good news is no estate tax federally. The other news is the Mom is not doing well; some days good; others not. Dad still comes to work everyday but he, like the rest of us, can’t recall from day to day whether it’s Vietnam with the 100% tariff or Guatamala. The now adult children are clear. The end is near and it’s time to get Mom and Pop’s estate in order. It might even be providential to sell the business to the folks who now make the clothes and become their U.S. sales representatives. But, Mom still owns 50% and she is asking whether Clinton has been impeached. And Dad thinks the kids should buy the foreign factories and bring their profits “in house.” He’s not grasping that his company constitutes less than 5% of the Vietnamese’s manufacturer’s output.
Then there is the local stuff. The “plant” that used to make the clothing is 90% leased to the folks from church who fix cars. That lease never was reduced to writing because they have always been “reliable” tenants. Those people are reliable but when the kids asked an appraiser to value the “plant” that fellow asked about the term of the lease. The appraiser also asked if there has ever been an environmental audit. The Guatamalan and Vietnamese folks interested in buying the garment business are asking about ownership and their draft offers talk in terms of “retained sales from existing buyers.” The only people who can conclude that sale either don’t want to sell (Pop) or aren’t clear if Bill Clinton is still in office (Mom).
If you have parents who fit this bill, it may be too late. Consult with an attorney who can represent you in trying to unbundle 50 years of unresolved “issues.” If you see these problems on the horizon, you need to act NOW. Parents drift into the cognitive night without notice or clear lines of mental decline. Once they pass over the mental capacity rubicon, they are not likely to come back. And while they may tell you that the “Lawyer knows everything”, you are likely to learn that the lawyer has been prompting them to put things in order and they decided that legal work could be deferred. Ask to have a meeting with the omniscient attorney and make certain the estate plan still makes sense and whether all the dots of the businesses and real estate “connect.” As my colleague is learning, the task of putting all of this together after death or cognitive disability is enormous when compared to doing it now. And, be aware that in a world where many families have children from prior marriages, step siblings may be looking over your shoulder concerning any steps you take.