Succession Planning – Blaine Birch

Interview by Kristen McAlister, President of Cerius Executives

Kristen McAlister: Hello and welcome to Cerius Business Today. This is Kristen McAllister, co-owner of Cerius Executives. I am joined today by Blaine Birch, partner at Birch, Haddock & Roll, which is an estate planning firm. Thank you so much for joining us today, Blaine. 

Blaine Birch: Thank you so much for having me. I really appreciate it, Kristen.

Kristen McAlister: So we ended up connecting and having a conversation on the topic of succession plannings. We do quite a bit of that with them, our clients here at Cerius, and we started sharing stories and it was almost kind of a, “how do we one-up each other?” 

And we’ve gotten a call on a Sunday night saying, “My father passed away this weekend. He was CEO of our company and he was the only one who knew how to run it. What do we do? We need a new CEO here tomorrow on an interim basis.” 

And then there are other clients who actually work with us in advance or we’ll work with them on what happens just in case you can’t run the company anymore. What does that plan look like? 

And those are two very different scenarios. So I thought it was great to have you on today. As we talk about succession planning, that’s not just in your business. But it’s the entire life as a business owner. You can’t separate my business from my personal life and everything that goes on.

Blaine Birch: That’s so true. A lot of estate planning is about having the right people in place at the right time. And, if there is no plan, you have to go to court and it just takes so much time and so much money and so much effort. Whereas, if you have a plan in place, those people are already selected and ready to go when things that happen during life happen. 

Kristen McAlister: We can stop the podcast right there. You said the magic word. If you don’t have a plan in place, people end up in court and no one dislikes attorneys and court fees more than business owners. You got me right there. We don’t need to go any further.

Blaine Birch: Yeah, no one likes paying attorney’s fees in general and having to pay for me to drive into LA, sit there for an hour and then drive back out of LA, just drives people nuts. So have a plan. 

Kristen McAlister: And we find with the planning, when you look at all that goes into it, it’s that old adage with technology.

If you’re building out software, you spend $1 if it’s in the planning stage, it’s $10 if it’s in the development and it’s a hundred dollars if you change something after the fact – I can imagine that same parallel. Now did you as a little boy, did you dream, I’m going to be a state planning attorney.

Blaine Birch: No. I don’t know what I dreamed about. As a little boy, I wanted to be a professional soccer player that did not happen early on. So I had to come up with another plan. 

I grew up in a family business and it’s really interesting. My grandmother, in the early 1900s, started a french fry business after World War II with her husband and that business paid for school for my dad who was an only child, but was basically going bankrupt when my dad got out of college.

My dad decided to take it over and made it into an onion ring business. So we started doing onion rings for Carl’s Jr. and Jack in the Box, and then ended up doing all sorts of vegetables, grilled and fire-roasted vegetables for all sorts of companies. It had grown from basically a business that was bankrupt into, you know, a pretty big nationwide business.

When I went to college, I went to business school and got a business degree and a marketing degree, was getting ready to graduate. The market was really bad. We had some lawsuits that had come about, and my dad, like every other business person was tired of paying attorney’s fees.

So he told me to go to law school so I could at least look at contracts and do some of the legal stuff for the business. And so I went to law school, although I never planned on ever going to court or being an attorney. During law school, the market went really well. And, the business did well just like most businesses during the time.

My dad got an offer from a much larger, agribusiness, so we sold the business just as I was coming out of law school. So my whole plan of joining the business and running it kind of went out the window at that point. I took a quick litigation job, realized I was not a litigator, and then decided I better look back at estate planning or at least business succession planning is what I really started doing. And then that got me into the estate planning. 

Kristen McAlister: All right. And when you say business succession planning, what types of situations were you helping companies with?

Blaine Birch: I was doing a lot of corporate law initially, in corporate litigation. Then that kind of turned into succession planning, which was M&A transactions. And then, we started looking at how that affected the business owners. And, again, I didn’t like being a litigator, so I kind of made a switch and started doing the estate planning portion of it.

Kristen McAlister: So you understand the impact across the spectrum of the company: the business owner, all the way through to the personal life and the personal finances. It seems as though you’ve seen all sides of it. 

Blaine Birch: I watched control pass from my grandparents to my dad. And then, it was starting to get ready to pass again and I was the only one interested. I have three sisters, but I was the only one interested in doing it and watching how that was going to happen. But also providing value to my sisters and things like that. There’s so much that goes into that and trying to figure out how to pass on that control to the stupid kid coming out of college who doesn’t know anything.

And how is he going to be able to stand in that role? There’s a lot that goes into that.

Kristen McAlister: Now fast forward. We talked about this: planning for an inevitable event is never easy. When most of us think about estate planning, we think, “Okay. That’s something that we’ll do and figure out how my money gets divided up at the end.”

I’m going to guess there’s a lot more to it. 

Blaine Birch: So that’s exactly right. Anytime I asked someone about, you know, talk to someone about estate planning, that’s what they think of. They think of a will and “I’m going to divide everything up evenly and everything will be fine,” which is a big portion of estate planning, but really, estate planning is not planning for death.

It’s planning for your whole life and making sure that no matter what happens, whether it be success or tragedy or something in between, there’s a plan for what is going to happen. Now, when you add a business or closely held business, like a family business into that equation, the decisions become much more important and much more difficult.

And the plan has to be more sophisticated. 

Kristen McAlister: So with that, quite a bit goes into it. 

As business owners, we love our tips. Just tell us the top five things we need to know, do not go on for 45 minutes to an hour and talk about estate planning.

So we’re going to do the crib notes. So, what are some of the top pieces of advice you’d give a business owner when they’re looking at succession and in estate planning for their business and their life? 

Blaine Birch: Business owners, especially entrepreneur-type owners, they’re a different breed.

First and foremost, I would suggest finding someone that you trust to be your estate planner, someone that you can talk to. And if that takes going and talking to a dozen different estate planners, that’s fine. But find someone that you connect with and can open up to, and who will understand your dilemmas as a business owner, because you are going to have to communicate with them.

The business owner has to tell the estate planner about family issues, problems with children, problems with a spouse, problems with a second spouse, problems with mixed family. You get real personal, and then you bring in the business and how maybe child number one is really working hard and wants to do all this, wants to take over, but child number two is kind of a little lazier, but we still want to provide for them. You have to be real honest and communicate. Otherwise you don’t get a plan that’s gonna work for you. 

Kristen McAlister: Glad you brought that up. When we were doing ours, I felt as though there should be a couch there and I was talking to a psychologist going through all the different scenarios and what ifs.

Blaine Birch: Rather than being an attorney, I’m much more a counselor. I counsel more than I do any sort of legal stuff. 

Another one is to plan early, business owners. They are busy and will oftentimes push this until the very end.

If you’re coming to an estate planner after you’ve signed a letter of intent to sell your business, or right at the end of your life, because you want to pass things off to your kids, it’s too late. So, get to know your estate planner, talk to them early and talk to them often.

And then the other one is: don’t be overly concerned about price. The cheapest option will be the cheapest option and it’s not going to work for someone, especially a business owner, because of all the extra things that need to be taken care of. It doesn’t mean you have to find the most expensive person, but, more than anything, find someone that you trust, find someone that’s qualified. 

There are ways that you can find good qualified people. One of them is through reputation, the estate planning community’s pretty small and you can find people that speak on the subjects, that are lecturers nationwide. They publish on trusts. Those are great people to have. 

Even though I’m still kind of young and building my reputation, I would much rather the estate planning community as a whole – base it on reputation and how good you are rather than to just kind of let anybody in and to talk to anybody. 

Also, in California, there’s a certified specialist for estate planning, trust and probate law, which I’ve done, which says that you’ve done over 50 advanced estate plans. You’ve spent multiple hours doing these things. You know the probate code. You’ve taken an extra test, much more specialized than the bar exam. So, a couple of ways. 

Kristen McAlister: I want to go back and unpack something. Cause I’ve been through it, but I’m not as familiar.

You’ve mentioned a couple of things as to advanced estate plans or you can’t do it once you’ve entered into an LOI. If you’re that far in the process and someone’s calling you to get it done, it’s quite a bit more complicated. If you can explain a little bit further and maybe an example as to what an advanced one is.

What do you mean? Why am I calling you at the last minute as I’m mentoring, as I’m selling my company? What benefit in my looking for to understand it’s more than I decide on who’s going to get what? And I signed a couple of documents. Is the planning portion of benefit to me?

Blaine Birch: Most people, when they think of estate planning, are talking about what’s called a revocable living trust, and that avoids probate.

It’s a great thing. It’s the foundation of any estate plan. However, when a business owner is looking to exit, whether that’s passing it on to the next generation, or selling the business, there’s so many other things that come into play and a lot of them are tax related. When estate planners are looking at taxes, it’s difficult sometimes to explain to clients, because there’s so many different taxes, you’re talking about income taxes, capital gains taxes, property taxes, estate taxes, and then both federal and local state taxes that can all be in play.

When you’re talking about trusts, you can move assets from one state to another or move jurisdictions so that you avoid taxes that you don’t have to pay. So there’s a lot of planning that can go into place before someone sells a business. As long as they get in there ahead of time. 

We made these mistakes when we were passing on my own family business, my grandparents made a great decision in doing a generation skipping, a gift, too. And they just skipped over my dad. My dad was taken care of, he didn’t need it. So they just did a generation skipping gift, which basically avoided a whole level of a state tax.

But we also made some mistakes. When we sold the business, it was a California business. My parents were in California. They didn’t do much planning to change residency and things like that. Nor did they do a trust that could help them do that. So, we ended up paying quite a bit on the sale, on the income taxes.

So, there’s lots of ways to help mitigate taxes. And you want to be careful. These are not tax avoidance strategies. These are clearly within the IRS regulations, but there are things that you can do to both protect the assets and mitigate taxes as much as possible as long as it’s planned. It’s really hard to do it afterwards.

Kristen McAlister: So the two things I’m hearing as a business owner: fewer attorney fees and less taxes. 

Blaine Birch: Yeah. 

Kristen McAlister: I was in a room with about 15 CEOs one time, and we were talking about who has a trust. Who’s done it – the estate planning. Only about half of us had done the planning and had a trust. Only about half had insurance. There were a number of things that you don’t think will happen, but they do. And it sounds like planning can also mitigate some personal things, especially when you’re looking at family owned businesses and passing it onto the children that can greatly benefit from the situation. 

Blaine Birch: Absolutely. There’s putting the plan in place and, to kind of get to what a plan looks like, we’ll have clients, if it’s a closely held business, if they have like a family business, I’m bringing the whole family in and we’re going to hash out a whole bunch of stuff in probably a series of family meetings.

I’m talking about which kids plan on taking over. Do, do they even have an interest? Do they want to do that? If they do, how’s that going to look? If there are two or three kids that want to take over, how’s the control going to work? Who’s going to be the CEO? The CFO? Who’s going to be the operations manager? Who’s gonna be in charge of all the different decisions that have to be made?

Then there are the tax implications of passing those things on when, anytime there’s an M&A transaction, the M&A attorneys are very, very good at looking at the deal and understanding the tax implications of the deal from the corporate point. But no one ever looks at how the owners are going to receive their benefits or their payout and the tax implications to them. Even if you do have an M&A attorney, talk about it with your estate planning attorney, because having more people look it over, even if the estate planning attorney says you’re in good shape, that’s better than paying $500 for that.

That’s better than going through the deal and then realizing you lost out on thousands, maybe tens of thousands, maybe millions of dollars of tax savings. 

Kristen McAlister: I think that helps. It just gives me quite a bit more background to understand why you can’t do it at the 10th hour, 11th hour and the importance of planning.

I cut you off. You were giving us some tips there, and I know that you have at least one or two more. What else would you say if you’re counseling a CEO and other tips that would be very helpful to get it right? 

Blaine Birch: The other portion is to find the right trustees and to discuss control.

Business owners are very worried about control around their businesses and they want to control everything and I totally get it. And I understand that the problem is probably one of communication. The definition of control to an estate planner doesn’t always mean control the way it does to a business owner.

So giving up control of something, giving up the shareholder control to a trust is very different than giving up operations of the business. But you do have to understand and have people that you trust to do a lot of these things and not be so worried about giving up control of certain aspects of the business or, at least, the view of control of the business so that you can put a plan in place that’s going to be really efficient. 

That’s difficult to explain and difficult to kind of communicate to clients a lot of times, but can be the difference between an estate plan that will not only be great asset protection for the next generation, but save a lot of money in taxes and fees, and one that’s mediocre that does those things, but not as effectively.

Kristen McAlister: I’m glad you brought that up. We were actually brought in on a similar situation where they had gone through all of that planning with their attorney and it came out that the daughter really wanted to take over the business and wanted to step up into that role. And the dad said she’s nowhere near ready.

So they actually brought in an interim CEO to shadow her over a period of six months and help her learn how to be that way. Not that she was taking over in the near future, but that she’d be more than ready. And I can see through some of these examples that there might be some things that need to be done and put in place early on to make sure that it is not completely flipping everything upside down, in addition to all the other turmoil that’s going on or when the transition is happening. 

Blaine Birch: So true. Having, and again, planning that out, talking about it, seeing where, and being honest about it, being honest that the daughter’s not ready yet. Okay, awesome. How do we get her ready? 

We have to understand that there are solutions to anything as long as we understand what the problem is and are honest about it.

Kristen McAlister: Fantastic. Any other top tips? I think you’ve got quite a few here. I have the trust. Find someone that you like, find someone who’s a specialist, a certified specialist  in estate planning. And before you can even do that, you need to have the 50 advanced plans done.

So it’s not something that’s easy to do. And there seems to be a lot of resources out there to be able to find information on someone who is certified, especially. 

Blaine Birch: You’ll find that there are a lot of attorneys that don’t practice estate planning, but it’s just something that some attorneys do because they’re not good lawyers. It’s really a different branch of the law altogether. So you’ll have attorneys, litigators, other types of attorneys that will fill out forms or trusts or powers of attorney or whatever because they think it’s just that easy when, really, there’s so much more that goes into building a trust and building one especially for businesses. 

Just one example is you have to have what are called QSST provisions in a trust if it’s going to hold escort stock – a lot of people don’t know that. So you build a trust and throw escort stock in it. If it doesn’t have those provisions, you’ve blown your escort election. And that could be disastrous for a company. So, there are just a lot of mistakes that can be made if it’s not someone that’s focused on estate planning, certified specialists in estate planning, or at least has just an excellent reputation in, in doing estate planning.

Kristen McAlister: And that’s someone who I think also has a part time psychology degree, as we were discussing. Plan early, plan often, know that you’re getting value for what you’re paying. Don’t always shop cheapest because you get what you pay for.

And we know that when we’re talking about our own goods and services, and then I’m glad you hit on the control – it’s an interesting conversation going through who is going to not necessarily have control of your company and all those decisions right now, but in the future and should different things happen?

I don’t know anyone who has had a life changing event with their family or their business and had all this in place, had insurance in place and looked back and said that it was all a waste of time and money. 

However, I do often hear the flip side of it: that they should have put all of this place. We get called in, and it’s never been discussed – who was going to run the company if something should happen in the future. It’s that, “we’ll deal with it when the time comes,” and that’s when it ends up costing.

Blaine Birch: Our best clients are ones that have been to probate. You know, someone that has gone to the court system and I have a couple of stories. One, we sold our business in 2006. So just before the crash. It was great. We got a great price. It took care of a lot of things.

We didn’t see a lot of problems in probate, but then 2008 happened and the housing market crashed and we literally had homes in probate waiting to be sold, but we had to get court approval and by the time they got court approval, the prices were cut in half and it was just so sad to see people lose half the value because you had to wait for the court system and having a trust in place, having a private document in place, having a plan in place makes it so much faster.

Kristen McAlister: As painful as you might think it is, it is so much better after the fact. Thank you very much, Blaine. I appreciate you joining us today and discussing that planning piece, whether it’s succession planning or business estate planning for both your business and your personal life.

It sounds like you really cover the spectrum on that and help business owners. And a lot of us don’t do things because we just don’t have all the answers. And we think we need to have all those answers, but it sounds as though you do a great job with helping them figure that out and talking it through with them, having done so many of these.

Blaine Birch: Thank you so much. This has been awesome. And it’s true: I don’t have all the answers either. It’s about finding the right one and the right fit. 

Kristen McAlister: I just told everyone that you’ll help them get all the answers. Blaine, don’t ruin this! 

Well, thank you so much. And thank you for joining us at Cerius Business Today.

Be well, be safe, and start planning. 

Blaine Birch: Thank you so much, Kristen.

---

To learn more about Cerius Executives or to get connected with Blaine, you can contact us at [email protected]. Thank you for joining.