Suttons Bay Law

A few weeks ago I posted a blog about my oldest son, Tucker, and his experiences in a high school hockey tournament and about how through perseverance, commitment and hard work he achieved success and assisted his team in winning a tournament semi-final game.

I also quoted various statements by Dr. Alan Zimmerman that appeared in his weekly newsletter entitled “Tuesday Tip” on success. Dr. Zimmerman commented that one must observe four key elements in order to achieve success which are to “toil awhile; to endure awhile; to believe always and to never turn back”.

April is Autism Awareness Month. I have three sons, all of whom are special, unique and from my prejudice view, great kids. One of my sons, a 14 year-old twin, Casey, is autistic. As I reflected further on my blog about my oldest son’s hard work and achievement of success on the ice, I began thinking about challenges that individuals who are autistic, like my son Casey, face minute-by-minute, hour-by-hour and day-by-day. The significant factor that makes autism so difficult to deal with is that it is a spectrum disorder that is not the same for any two individuals. There are varying degrees of autism and how it manifests itself in people.

Children with autism may act in some unusual ways. Some may have difficulties with certain activities, but they may have strengths in other areas. For instance, a child with autism may be a math wiz, a great artist or unbeatable at computer games. Still, they may have trouble putting their thoughts into words or understanding what you say.

Some children with autism prefer that schedules stay the same or that people always sit in the same seats and they have a difficult time when things change. Changes may be scary for them, so they may try telling others what to do or where to sit. When schedules change and they do not know what is coming next, they are very upset, sad or angry.

Some children with autism do not see, hear, or feel things the same way we do. For instance, the sound of a school bell or the noise of a parade may hurt their ears. Some may have trouble eating certain foods because of the way they taste. Others may be very sensitive to certain smells. Smells we like, such as cookies baking, may make them feel sick. On the other hand, things that bother most of us, like a bee sting, may not appear to be as painful to them.

No one knows why some people have autism, and there may be many difference causes. Scientists are still trying to find out just what those causes are and how to best help people with autism. Approximately 1,500,000 people in the United States have autism, and it is more common in boys then girls.

In my previous blog I reflected on my son, Tucker’s experience in his hockey game, stating “it occurred to me that his path to success in that situation mirrors how we, as adults, should pursue success”. Being the parent of an autistic child, I have been blessed to witness Casey’s hard work, dedication and perseverance to be successful. On occasion, I have the good fortune of either driving my son Casey to his junior high school or picking him up after school. Even though he struggles mightily to keep the world around him in order in his own mind to be able to function and make his way through the day, he always cheerfully exits the vehicle, instructs me to have a great day, throws his backpack over his shoulder and marches into his school together with approximately 800 other junior high students. Given Casey’s challenges, I can’t begin to understand the courage it must take for him to make it through each and every day.

Casey is “successful”. The measure of each person’s success is relative to the courage and hard work that gets them through their problems. Often times children with autism are referred to as “special needs children”. In our family, we don’t think of Casey as having “special needs”, we think that Casey has special gifts that we as a family learn from and are inspired by each day.

While we hope and pray for medical and other related advancements to identify autisms cause and a cure, let’s not forget to celebrate the inspiration these individuals can provide to us in our every day lives.

Dan A. Penning (aka proud father)

Tags: Estate Planning, Special Needs Children by Dan Penning
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“…proper planning in most instances can navigate around any estate tax liability…”

There is a long history of debate regarding the federal estate tax. The implementation of the tax originally was to prevent the build-up of wealth that could lead to a creation of large estates and a permanent class of idle rich that would attempt to impose a monarchy.

While I am generally not in favor of raising taxes or the estate tax in general, there is a valid question as to whether the impact of the existence of the estate tax has any real negative impact on the majority of small business owners and family farms. Previously, President Bush tried to repeal the estate tax in his 2001 Tax Bill. President Bush succeeded to include provisions in the Bill that would phase the estate tax out of existence by the year 2010. The goal of the phase-out included in the Bill was to provide Congress with incentive to affirmatively decide the fate of the estate tax before its repeal in 2010. Now that President Obama has been elected, the fate of the estate tax has taken a different turn.

Under President Obama’s proposed new budget bill, there are provisions that freeze the estate tax at its 2009 level. The 2009 estate tax level provides for individuals with estates of up to $3.5 million to be exempt from estate tax which begins at a 45% tax rate, and married couples, with proper planning, can obtain an exemption of up to $7 million. In addition to using the aforementioned estate tax exemptions, there are additional estate planning tools which can, depending on the assets includable in an individual or married couple’s estate, provide for opportunities to possibly avoid estate tax on estates worth as much as $10 – 12 million or more.

The question then becomes is the estate tax a lion roaring down the path to chew up large pieces of individual’s estates, or is it a lamb in most instances avoidable and of no consequence?

According to a study by The Center on Budget Policy and Priorities, a Washington-based think tank, estate tax does not pose a significant problem to small business owners or individuals with family farms. That study claims that almost no small businesses or farm estates would owe any estate tax under the Obama budget bill. Based on the study’s analysis, fewer than .2% of all estates–2 of every 1000–will be subject to tax in 2009. Of the estates that are taxable, only about 1.3% are small business or farm estates. At the end of the day, the study purposes that only 3 out of every 100,000 people who die this year owning a small business or farm will be subject to any estate tax.

On the other side of the debate, the National Federation of Independent Business (NFIB) runs a separate organization, The Family Business Estate Tax Coalition, which primarily focuses its efforts to obtain a repeal of the estate tax. This organization argues that over the life of a business, the government collects income tax and other taxes. As a result, the group argues that the government has taken more than its fair share in taxes prior to an individual’s death. The organization further argues that the assets of a small business or family farm, including real estate, equipment, machinery and other business property can quickly add up to millions of dollars of value and yet only result in the production of a middle class income for the business or farm owner. While the individual, during their lifetime, may have paid for significant business assets, the group argues that the reality is that the individual only received a nominal return in income when compared to the overall value of the business assets.

The debate regarding estate tax will never cease as long as it is in effect. The lesson to be learned by an individual, small business owner or family farm owner is that proper planning in most instances can navigate around any estate tax liability.

Dan A. Penning
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Know Your Business, Grow Your Business, Protect Your Business

Tags: Agribusiness, Business Succession, Estate Planning by Dan Penning
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The article below (original source: London Free Press) contains information and recites various factors regarding family business succession planning, or lack thereof, in London and in other countries. Information reported in the article is not unique to London. In my practice, I represent several family-owned businesses that avoid succession planning for their businesses.

Succession planning for a family business is hard work. Often times, the family business owner’s avoidance of succession planning causes a strain on relationships and negatively impacts the productivity and profitably of the family-owned business.

The need for succession planning in family-owned businesses is important for several reasons. The succession plan can preserve relationships among family members, preserve family businesses contribution to the community through employment of people and support of various civic and charitable organizations, as well as providing the business community or general public with quality products. There are several resources that are available and should be consulted with respect to a family business succession plan. It is essential that the family business owner involve his or her accountant, attorney and financial adviser in the succession planning process. These professionals are necessary to make sure taxes are minimized, agreements are enforceable and will withstand scrutiny and that the business owner will ultimately be in a strong financial position to enjoy the rest of his or her life.

Dan A. Penning
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Read the entire article and comments from the London Free Press

Who’s taking over the business?
By HANK DANISZEWSKI, FREE PRESS BUSINESS REPORTER.

All across London, thousands of baby boomer business owners are approaching retirement and looking forward to handing their business over to the next generation.

But they’re not doing anything to prepare and that’s inviting trouble, say experts in family businesses.

Consultant John Geddes, a London native now based in Aurora, says many boomer business owners simply refuse to plan for the inevitable.

“They think their business will go on forever and they assume the kids or someone else will take over in a seamless way,” says Geddes, author of a new book, Succession and the Family Business: A Road Full of Potholes or Paved with Gold.

David Simpson, executive director of the Business Families Centre at the Richard Ivey School of Business, says it’s also a touchy topic for the next generation.

“You create a mythology around your business and burden your kids to carry it on . . . because grandpa founded this firm,” he said.

Simpson said some of his students are in business school to help out their family business and some are there to get away from the family business.

“But when I ask either side how many have told their parents about their plans, I get dead silence.”

Henry Vergeer, founder and owner of CEM Specialties in London, is way ahead of most boomers. Now 55, he has three sons who could potentially take over the business. He’s working on a succession plan in consultation with Geddes.

“I would like to see them carry on the legacy, but the interest has to be there,” said Vergeer, who has 15 employees.

Founded in 1992, CEM has developed a solid market installing and servicing pollution monitoring equipment for major clients such as Ontario Power Generation.

Vergeer said his oldest son, 27-year-old Michael, has worked at the company and is interested in taking over. But he’s serving with the Canadian Armed Forces and is committed for the next seven years.

Vergeer said he’s working to get his company into good shape for whoever takes over.

He wants to avoid potential conflicts.

“Family politics and emotions can get into the game and really cloud the issue,” he said.

Geddes said we should all care about the handover of family businesses because 80% of London’s 6,640 businesses are family-owned or managed. Since only 30% of family businesses survive from one generation to the next, he said, the jobs of about 26,000 people employed by those businesses are on the line.

Geddes said the question will soon become urgent because the average business owner is 58 and planning for succession can take years.

“This is really a baby boomer issue. The transition is going to happen whether they want it or not,” he said.

Geddes said handing down the business can provoke ugly family battles with children or between siblings.

“We often get called in after the family stops talking to each other.”

Some high-profile Canadian businesses have wrestled with the issue. The handover of the Canadian Tire and McCain frozen food empires both provoked bitter and public family battles.

Closer to home, the sons of Mac Cuddy clashed with their father and with each other over control of the London-based poultry empire.

Simpson said only about 10% of family businesses make it to the third generation and while that may seem low, it’s better than the survival rate for non-family businesses.

“How many businesses last 70 years? The oldest business in the world are almost all family-run,” he said.

Simpson said family-run businesses deserve support because they’re much more rooted in their communities. New Brunswick’s McCain family, despite their internal battles, are a good example, he said.

“There are no oranges growing in Saint John river valley. But it has the largest orange juice processing in North America because the McCain family lives there,” Simpson said.

The crucial question for family-owned businesses is whether there’s a child or family member willing and competent to take the business over. Unlike previous generations, boomers typically only have two or three children, lowering the odds one of them is willing to take over.

Geddes said it’s an issue loaded with emotional baggage.

“Blood is thicker than water and harder to see through. They may not realize their family member does not have the skills to manage.”

The children may think they’re entitled to the business and aren’t willing to pay for it and provide the retiring parents with a comfortable retirement.

“The children sometimes think the business is an ATM — it just finances their lifestyle.”

Geddes and Simpson both said it often makes more sense to sell a family business to a long-term employee or senior manager.

Simpson said it’s better for entrepreneurs to pass their skills on to their children and think in terms of a business family, rather than a family business.

He said it’s a good idea for the children of entrepreneurs to get a good business education and spend a few years working outside the family business.

They then have to decide whether to take over personal control of the business, turn it to professional managers or sell it outright.

Simpson said the retiring business owner also has to make a commitment to give up control.

He said one prominent London business family, who he declined to name, agreed the founder would not set foot in the main office after the son took over the business.

Geddes said the goal for his succession plans is to find an arrangement that works from a business and personal level.

“I am working to make sure they can still have Thanksgiving dinner together and it doesn’t destroy the family relationships and the business.”

Tags: Business Succession by Dan Penning
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