Eliminating Legal Risk for Business Owners, with Attorney Casey Conklin

0:01 Too often when somebody passes, well, you know, houses are tough enough to transfer and stocks, bonds, and sentimental items, one most challenging things to pass from one generation to the next or one heir or a partner to another partner are businesses cuz they're obviously way more complex. And I always feel like it looks different when the decedent's gone than when they what they thought they'd do ahead of time. Really excited have today an attorney who not only specializes in this area, Casey Conklin, who's been on before, but more than that, wrote a book called Protected Profits, which really attempts to lay out and in his practice lays out how smart businesses can eliminate that risk before it destroys the business. Casey, thanks for joining us today.

0:44 Yeah, thanks for having me. It's great to be back. So, what percentage of your practice are people who come to you ahead of time to say, "I want to avoid these problems." and what percentage of those who say, "Help! I should talk to you 6 months ago."?

0:55 It's majority is the latter. Most people come when something goes wrong. You know, I would say maybe 90/10, something like that, but I do have a handful of clients that are just on retainer and they say, "Hey, this is what I want to do. How can I make sure nothing goes wrong?"

1:15 Wow. Well, let's talk about the first part when they don't plan. What are the most common thing I mean, I don't know, I've seen this. Like I was involved in a large estate where the decedent had no plan. He had a plan actually wasn't executed. He paid tens of thousands of dollars and didn't sign the documents or notarize anything. So, in essence, he didn't have a plan here in California at least. And as a result, you know, I was called in with a fiduciary to help manage the transition of the business and it's very complicated. You got money requirements right away. Meanwhile, you might not have letters for 30, 45 days, or longer. So, talk about what are one or two of the biggest problems that you see when people come to you without planning that they need your help with.

1:56 Yeah, so one of the biggest issues that we deal with if there's no plan and an owner dies, you know, if you're if you're a sole proprietorship, it's not usually as big an issue, but if you have partners or if you're an LLC, you have other members of the LLC,

2:12 It's how to deal with that deceased member's share of the business. And if there's no plan in place, that share actually gets probated. So, you could end up in business with your partner's spouse, your partner's child, your partner's grandchild, whatever it might be, whoever inherits that business. And most of the time, that's not a situation you want to be in.

2:38 In this one case I was in, the decedent specialty in real estate for the cannabis industry, which is very popular in particular in downtown Los Angeles. He had both properties he invested in, he had a brokerage business, and a property management business. And the heir, the sole heir, was in the military as a professional, not as I guess he had been a soldier, but he was working in the Pentagon basically, where for security couldn't be involved with cannabis. So, he had all these tenants and properties and stuff, and you can imagine that, you know, maybe if you'd had a holding corporation or some other way of holding it, perhaps he could have got away with it, but he was concerned that it might affect his security clearance and his ability to continue to work.

3:21 Right. For sure. What other kinds of problems do you see? One, I guess, is dealing with somebody else's spouse. It's tough enough. My wife isn't here. It's tough enough being married, let alone being married in business with somebody else's spouse. That must be a lot of fun.

3:33 Yeah, and it creates a lot of issues. And you know, in inherently, there's a lot of value in just about any business. And

3:44 You know, you don't I don't you know, we can't predict how those relationships are at the time of death, but after the time of death, those relationships get strained significantly.

3:56 Well, cuz before the time of death, they're social. After the time of death, it's just money. You're dividing up a pie. And what I've seen is that there's an inherent tension between convenience for the entity to continue, right? The business can't afford a long, protracted, expensive battle over who's in charge cuz they need decisions made daily, weekly, monthly to keep going. And yet, you can make it easy, but is that fair to both parties? And I've seen cases where the plan that was written out was too generous to the entity and not enough to the surviving spouse. I've seen both the opposite. And they all they all have hard feelings either way. So, how do you kind of find that balance between you know, when they're alive, they want to be fair to the business, it's a legacy. On the other hand, you don't want to shortchange your spouse, your family, or whoever else you're leaving money to.

4:44 Right. Right. Well, I mean, planning is the best way to deal with that stuff. So, what we do a lot, and I discuss this in my book, is we use buy-sell agreements. So, if one partner were to pass away, there's already an agreement in place that says we're going to buy out your estate, and this is how it's going to be valued. And then you can decide how it's going to be valued at the time. So,

5:07 Right. Generally, we say at the time of death, we're going to bring in two evaluators, and then we're going to take an average of what they come up with, and that's going to be the value. Usually, we fund those buy-sell agreements with life insurance policies on the owners. Those life insurance policies are so that the business doesn't go bankrupt trying to buy out the deceased spouse's estate.

5:30 Right. Right? Cuz now, you know, if you've got a $10 million business, are you going to have $5 million liquid to be able to buy out, you know, your partner's estate? Probably not. That $10 million is usually wrapped up in assets and real estate.

5:44 Right. Yeah, in fact, I was involved in another case where they had a buy-sell for the business for my insurance, but they never did anything about I guess later the business bought the building that they operate out of and they operate out of part of it and they landlord the rest. And so when it came time to deal with that, you know, what's the business worth? Well, they were paying at the business a very low rent. You know, they're on their half they're landlording themselves, so they had a low rent and the surviving spouse will hold it. That's just because the company's business does not turn right. I'm half owner of the property. And at least in California, the half owner has as much right as the other, but it's hard to get that done without lawyering up, having attorneys, spending money, and causing conflict.

6:29 Yeah, and that's where the pre-planning comes into play a lot. We not only pre-plan how to value it at the time of death, we pre-plan what's going to happen to it. So, you use a couple of different things. So, the main thing with a business is you got to have a strong operating agreement. Here in Michigan, we have a set of laws that are your operating agreement, but we can contract ourselves out of those laws. So, we can write an operating agreement between business owners that says, "This is how we want transition of business to go, not what the state of Michigan says." so that's the first thing to make sure you have a strong operating agreement and then each owner needs to have a strong estate plan in place as well because if that business ends up having to be probated, you're talking thousands of dollars and a year or more of time wasted trying to figure out the new ownership of the business after a partner dies, and that's usually pretty catastrophic for businesses.

7:35 I was I was involved in another estate where the he had partnerships a couple different people, and what was amazing to me, I remember speaking about this to the fiduciary, was the people who said they were his closest friends when he was living were the worst partners, the worst customers of the company, because once the once the decedent's gone, it was just money. And one of them actually, I think, in my opinion, used his inside information against the partnership to try to get property on the cheap. And it was just it just surprised me cuz I remember looking at the email, "Oh, I love so-and-so. He's my best friend. He was his mentor." Blah. Meanwhile, he's trying to rob the estate, basically. And so, the these things can become very emotional. So, for you as an attorney, you know, I'm always impressed when I see attorneys in that you have to kind of wear two hats. On one hand, you have to be, you know the law, the technical legal procedures, the documents, how to write letters, how to, you know, the technical things you went to law school for. And then, at the same time, you have to be aware that the people you're dealing with are humans. You don't want to throw gas on a fire and make a relationship worse. So, talk a little bit about kind of walking that fine line when you have a have an you know, a decedent and maybe a spouse who's upset, emotional, things are being taken advantage of. How do you kind of walk them off the ledge to be productive rather than just vindictive?

8:53 Yeah, I mean, so every attorney is not only experienced in the law, but we have to also be experienced in conflict resolution. All right, it's about negotiating and you know, I remember years ago in law school, my ADR professor, ADR's alternative dispute resolution, said that it's usually a good outcome when both sides are not happy. Cuz that means both sides had to compromise.

9:24 Yeah. So, you know, you got to draw that line. Like you said, we got to we have to deal with human nature as well as with the law. And a lot of times, those don't go well together, because human nature wants what they want and the law says, "No, this is what you get."

9:41 Right. So, it's really a balancing act, you know, and that's the negotiator, you know, part of me that's stepping into that and saying, "Listen, this is this is what it's going to be, but this is what we can do to make it better for you."

9:53 You know, I think, you know, like everything in life, you know, a little planning, getting stuff done ahead time always works to your advantage in the long run. You can redo it, you can put, you know, put in the bank, you can move forward. I'm sure you have clients who are really good business clients who you discuss these things with and need to get maybe an updated estate plan or more detailed estate plan or an estate plan and you remind them, I'm sure, once, twice, the next time something comes up. I've seen that myself where I had an attorney where we were in court for a probate and he was you know, inheriting a lot of money and he never had He had a lot of money to start with. He at least enough to need a plan. And he goes, "Oh, yeah, you know, the attorney keeps reminding me I need to do that." Well, yeah. So, how do you kind of straddle that line between on the one hand, you care about your client, you know in the long run it's good for them, it's not just more fees for you. Yeah, it's a little fee in the front end, maybe, but it's a lot less in the long run and more importantly, the customer gets a much better or the client gets a much better outcome. How do you see yourself kind of you know, you don't be a salesman, but at the same time you want your client to benefit from your service?

10:58 Yeah, and it's kind of it's kind of a difficult thing to do because everybody comes in, especially if it's an unknown person. Like with my current business clients, I say, "Hey, you need an estate plan." They're like, "Okay. Yeah, you're right." You know, but, you know, the new people walking in everybody comes in with their shields up, right? And they think it's just a sales pitch and that attorneys are greedy and we're just trying to get as much money as we can from them as soon as we can from them and you know, I worked in sales before I went to law school and I hated it, and then now that I'm a lawyer, I'm spending most of my time doing sales. So, it's a difficult thing for that I that I try to deal with, and I look at it more as educating. So, you know, when I when people sit down across the table from me or, you know, on the other side of the camera, I figure out what they know, what they don't know, and try to fill those gaps. And hopefully during that process, the sale is made that the quote-unquote sale is made because they realize, oh, I need to get this taken care of because of that situation. So, a lot of it is just learning and educating.

12:17 Yeah, I think that's why I launched this podcast, quite frankly, is I feel like if we if we have a population that's more educated in importance of planning and preparing, more will get done. There's more business for everybody, and so, obviously, for anybody in Michigan, you'd be a great asset to talk about you know, business planning and estate planning and so on. So, let's talk about your book, Protected Profits, How Smart Business Owners Eliminate Legal Risk. Now, that's a bold claim, eliminate legal risk. Maybe limit legal risk, cuz you're not giving kind of a money-back guarantee you won't be sued if you follow your plan, right? You talk about you know, all it takes is one poorly written contract. Sounds like there's a story behind that one on your on your business. There was a particularly poorly written contract that caused a client to get sued that you were able to extricate them from?

13:07 Well, you know, it happens all the time, actually. So, there's multiple, but usually what happens is there's a contract written, and somebody wants to get out of that contract, and there's no clear terms as to what happens when we want to end that contract. I mean, that's a big thing that the termination details. You know, you don't want to be in business with somebody forever necessarily. Sometimes you might, but he so we need to plan ahead of time for when that when that contract is time to be up, how do we do that? So, on the one side you have the side of the bus the contract that's earning the money from that and the side of the contract that's getting a service provided. So, if the service provider decides, "Hey, I don't want this anymore." and they just stop paying, now the earning money side is like, "Well, I was expecting this money for 6 more months." or whatever it might be, right? So, there's those issues that you need to make sure you cover. The and you know, I can't because of privacy laws within the law, I can't discuss specific client details, but you know, I can tell you employment contracts are a big thing that we deal with a lot.

14:32 You know, when an employee wants to leave or when the employer wants to get rid of an employee. Yeah. Yeah, that's I'm in California, so we're in the middle of that revolution right now. What are the most common things that you find get businesses sued or lawsuits that you think are preventable? If you had to pick one or two areas that they do that, you know, maybe it's a regular part of your business and you say, "I told him that." or "I should have told him that." or "He should have known that better." What's one or two most common ones?

15:05 The most common is just poorly weak, I should say, written contracts, right? So, you know, I have one client that's a construction contractor and they entered into a contract with a client to build a deck and the client said, "Well, my deck needs to be painted." "Okay, well, that's going to be another $2,000." "No, it's not. You signed this contract saying I'm going to build the deck." "Part of building the deck is being painted." The contract No. The This says build the deck.

15:38 Oh, well. And, you know, so you know, stuff like that, and ultimately, I you know, I went to him and I said, "Okay, well, for now, you're in a PR situation. So, paint the deck, and then we'll learn from this mistake, and next time, we'll have our contract I'll have your contract more secure that says this is what this project includes."

16:02 Yeah. And yes, that's the whole My father was an attorney, and then come routine civil I'm sorry, routine commercial litigation and contracts and such. And I think because I learned that the contract should spell out what you're doing. Like, it's not you're not being a lawyer, or you're not being too strict to say, "Well, let's put in there exactly what the deck is." Well, why? I use contract 100 times. Yeah, but it doesn't say what it's what it's going to do. And I feel like that's the beauty of the contract is let's write it out so we're both on the same page. Literally, we're on we have a page, both sign it, we're both on the same part of what that means. Not that solves every problem, but we should endeavor to have it be as clear as possible in writing.

16:45 Right. And, you know, my subtitle is eliminate legal risk, but you know, you're right, you can never eliminate it cuz we're a litigious society. People can sue you for whatever they want. The eliminating the legal risk part means when somebody sues you, we have the defenses to knock it away.

17:02 Right. And that's comes with strong contracts and clear language to make sure that and even if it's not a contract, it might be an insurance policy that knocks it away. Right? You have to have the proper insurance in place for certain situations such as cyber liability which is big these days. You're taking client information. If your system gets hacked, you know, you could be in big trouble if you don't have a cyber policy in place to take care of that.

17:31 Unless you're the federal government, but that's a whole 'nother story. Yeah. Yeah. You know, I'm involved in case now where it's a probate case in California. I think we're the only state that has in our standard Realtor® forms a disclosure for probate both on the listing form and on the purchase agreement. There's an addendum specifically for probate. And I like it cuz it spells everything out and you check the boxes addendum and there's a couple key things put in there. It surprises me that at least in my experience no other state has any such standard form. Have you ever had a client approach you and say, "Hey, we're selling this as a probate. What should we have in here to protect us?" Cuz I can I can envision numerous problems. Now, I'm in California where things are worse or probate cases are backlogged. We're more litigious state than others, but still Michigan you have lawsuits. You're in business by definition. Have you had occasions in probate where you had to write an addendum of some sort to protect the seller or the buyer?

18:36 Yeah, and actually I'm working on one right now where we're selling a house as part of a lawsuit. So, you know, it was a business deal and the one side came up a couple hundred thousand dollars short. And so, the other side sued and he said, "Well, I don't have $200,000, but what I'll do is I'll sell you my property in Michigan for a discount of what I owe you from this lawsuit." And so, you know, I worked on the purchase agreement for that and part of that is, you know, cuz as you know, when you when you're selling real property, the value matters. So, we can't just say we're selling this property for, you know, $500,000 when it's worth $750,000.

19:28 Right. So, we had to write the purchase agreement, you know, to include that, addendum that says we're selling it for $500,000 plus giving up $200,000 in debt, valuing the home at $700,000.

19:50 Yeah, and I think that's where you have to have some special coverage in the purchase contract and you can't just say, "Well, we know that. Oh, he told us this." That's the whole problem in California law. I imagine it's true in most states. If it's not in writing, it doesn't matter. Everything has to be in writing on the real estate transaction. And so, a promises, commitments, acceptances have to have to be written. And just amazes me. I For me, it's very convenient. In fact, I'll just share with anybody listening, in California, we have AIR forms, also. These are Association of Industrial Real Estate for, you know, bigger properties. And often the AIR Realtors® don't belong to the Association of Realtors®, so they don't have the California Association of Realtors® forms. They use the AIR forms.

20:31 What's fascinating is the AIR forms specifically say this is not a probate in their in their text. And they don't have an addendum. I verified with their the head attorney. So, basically any contract ever done on these forms, unless you noticed it and changed it, was basically wrong, right? You could say it's not a probate when it is a probate. It's I'm not sure what the legal implication of that would be, but business-wise, it doesn't sound right to me. So, again, make sure you If you have these unique circumstances, get with an attorney and write some specific language to protect yourself because it's not It is not a problem until it's a problem and then you have a problem.

21:03 Right. Yeah. Yeah, and then that's usually when they call me and I tell you know, in my when I'm when I'm giving talks or networking groups or whatever, I say it costs a lot more for me to fix your problems than it is for us to prevent them. So,

21:19 Yes. Let's prevent the problems and so that when it comes up, we can, you know, knock it away for fairly cheap.

21:27 It's like changing oil in your car. It's like cheaper to change your oil regularly than it is to get a new engine every for many years it would be. I learned that one the hard way once when I was a kid, so Well, look, Casey, obviously there's a lot of legal issues that are common in for me in California, you in Michigan. I think the one thing that I that I hear in your when I talk to you this time detail is the importance of planning ahead. And I think one way to do that is to is to get with your attorney or in the meantime if you don't have time to do that, get a good book on the subject. And so, Casey went through the trouble of writing a book Protected Profits: How Smart Business Owners Eliminate Legal Risk. Obviously, if you're business owner and you have in particular you know, you're older, sick, all the more reason why you get these plans done. I have down the link below. He's selling it on Amazon and he has a promotion on Kindle for 99 cents. I think that's because you want to get this thing read more than you do when it sell books. Is that a fair assessment?

22:22 Yep. Yeah, that's exactly right. And you know, on Kindle, there's a lot less overhead involved, so. Yeah. Yeah, beautiful. You sell the book and they ship it electronically and you're good to go. Well, Casey, thank you so much for joining us today. I think for anybody who's interested in more if you're if you are a business person in particular or have network that needs some estate planning in the state of Michigan, reach out. Casey.d.conklin.com is the website. Casey.d.conklin. Phone number [phone number]. If you're driving can't get this, feel free to reach out to me. I'd be honored to make a connection to Casey who's been on here before as well. Casey, thank you again for joining us on Probate Weekly.

22:59 Yeah, thanks for having me. It's a pleasure as usual. And for the rest of you, this is Probate Weekly we get together every week with attorneys that do probate and estate planning, general legal work that involves those matters as well. Hope you enjoy this one. Give me a like if you like it or not if you don't. Give me a comment, glad to get it in the description on the YouTube if I can. Reach out to me if I can help in any way, call, text or email or see me on social media @billgrossprobate. As always, make today your best day ever. Thanks so much.