Our last article was about Bob Ross, the host of the wildly popular The Joy of Painting TV series on PBS. In part one, we went into detail about how Bob clearly intended to leave his intellectual property rights to his son. However, because Bob failed to coordinate his business agreements with his estate plan, his son Steve will never share in the fortune made by the vast business empire built on his father’s name, likeness, and persona. Here in part two, we’ll explain the steps you can take to ensure that your loved ones don’t suffer the same fate.
Ensure Your Business Agreements Are in Accord With Your Estate Plan
While Bob changed his estate plan to transfer the rights to his intellectual property to his son, Steve, and half-brother, Jimmie Cox, the court ruled that Bob couldn’t transfer those rights. The court ruled that Bob had transferred all his rights to his intellectual property to Bob Ross Inc. during his lifetime, and it didn’t matter what his estate plan said.
Bob’s situation is fairly common among business owners. When business owners create their governing documents- operating and partnership agreements, etc.- they often aren’t thinking about what would happen to their business and its assets when they die or if they become incapacitated. Because they don’t consider the impact, they don’t take the proper precautions to ensure their business assets are properly protected should something happen to them.
In other cases- as we saw with Bob Ross- business owners falsely assume that their estate plan will control or override any business agreements they entered into and that business assets will pass to their loved ones via their will or trusts, regardless of what other business agreements say. Unbeknownst to many, the very opposite is true. Whether it’s a partnership, LLC, corporation, or some other business structure, your estate plan does not have any power to modify, undo, or override any business agreements which you entered during your life.
The bottom line: it’s essential that you make certain that any business agreements you enter into are in coordination with your estate plan. We can help you do this.
As we saw with Bob’s case, failing to coordinate your business agreements with your estate can lead to disastrous consequences. Whether your business is just getting started or you’ve been in business for years, here are the steps you need to take to avoid making the same not-so-happy mistakes that affected Bob Ross and his family.
The Right Way to Plan
The ideal time to coordinate your business agreements with your estate plan is when you first launch your business. Address the ownership rights to all of your business assets, including any intellectual property, from the very start and incorporate those ownership rights into your company’s governing documents.
If your business has multiple owners, you’ll want to enter into the process of making agreements with your partners. All too often, business agreements are created via form or template documents that do not give any real consideration to your most valuable assets. If that’s the case for you, it is not too late to make a change; but don’t put it off because tomorrow may be too late.
You need to make certain that the documents that govern your business (operating agreements, bylaws, partnership agreements, etc), address the ownership rights to all the company’s assets, clearly and intentionally. Be sure those governing documents consider what happens to the company upon sale, death, or disability of each owner of the company.
To ensure your intellectual property (and all of the assets of your business) are properly considered in your governing documents, you should consult with a trusted attorney who has experience in both intellectual property and estate planning.
If you are like Bob and you failed to coordinate your company’s governing documents with your estate plan at the start of your business, you’ll need to hire a lawyer to review your company’s existing governing documents to determine how the documents address the ownership and succession of the company’s assets. As they say, better late than never.
If upon reviewing the governing documents, you find that the ownership rights are not in alignment with your estate planning goals, it may be possible to renegotiate the agreement with the other owners and amend the documents to better fit with your aims. If renegotiating the ownership rights proves infeasible, at least you will be aware of this fact and may be able to come up with an alternative solution.
Once you’ve ensured the proper distribution of your business assets through your company’s governing documents, then you must use your estate plan to protect and pass on the ownership rights of the business interests you own. Creating a comprehensive succession plan is just as crucial as any other planning you do for your business, if not more.
As we saw with Bob Ross, not planning for the future of your business can have terrible consequences for your family if (and when) something should happen to you. A succession plan is designed to ensure that your company will continue to prosper once you are no longer running the show.
A Road Map For the Future Of Your Business
That being said, when it comes to estate and succession planning, it can be difficult to even identify clear goals for a future that doesn’t involve you. This is just natural. Multi-generational planning is by default something you’re almost certainly unfamiliar with and most people just don’t want to think about it.
But you must. Because you and your family deserve the fruits and rewards that you worked hard for.
Leveraging Your Intellectual Property For Future Generations
After you’ve decided how you want your business to be run in your absence and formally spelled this out in your succession plan, you may want to consider separating your operating activities and your intellectual property into separate entities. In most cases, the best planning vehicle for this purpose is going to be a trust, either a revocable living trust, an irrevocable trust, or a combination of the two.
When creating the trust, you’ll also want to consider which of your loved ones is best suited for owning and managing these intangible assets, as well as how you’d like those assets to be used for the benefit of your loved ones.
Intellectual property can be leveraged to create revenue in several different ways. For example, your beneficiaries could sell your intellectual property outright, or decide to license the use to others. As we saw with Bob Ross’s case when properly managed, the licensing fees for a company’s intellectual property can generate millions in revenue, and that income stream has the potential to continue for generations to come.
Avoiding the No-So-Happy-Accident
Don’t let what happened to Bob Ross’s family happen to yours. If you own a business, it’s crucial that you ensure that all of the wealth and assets you’ve worked so hard to build will be properly passed on to your loved ones.
Don’t let your loved ones find themselves in the same situation as Bob’s son Steve. The business built on his father’s name and persona continues to bring in millions of dollars every year for someone other than Bob Ross’s loved ones.
We know that your business is one of your family’s most precious assets, and with our support and guidance. We also know that you want to ensure that it will continue to provide the maximum benefit for your loved ones. If you haven’t taken the time to put proper estate planning in place, consult with us, so we can help you find the estate planning strategies best suited for your asset profile and family dynamics.
And if you already have an estate plan-even one created by another lawyer- we can review your plan to ensure it will work as intended. Contact us today to get started.