Noncompetition agreements are a common fact of life for many of the mid- and senior-level executives I represent in estate planning, and for business owner clients with employees.
Because noncompetes are such important features of the life cycle estate and financial planning landscape, I sat down with my colleague Rebecca Weis to learn more about them.
- The more senior you are, or the more client-facing your role is, the more likely your employer is to present you with a noncompete.
- The more senior you are, the more latitude you tend to have to negotiate specific terms of your noncompete.
- If you’re less senior, agreements tend to be less negotiable, but also less enforceable.
In my practice, I have found that a majority of my clients who create significant wealth do so through ownership of a private business or a concentrated stock position in a publicly traded company.
What that means for you is that if you haven’t yet started a business or taken an ownership position in one, it’s probably only a matter of time until you will.
Among many others, reasons you might start (or end up owning part of) a business include:
- You buy a vacation rental property
- You start investing in multi-family or commercial real estate
- Your start your own professional practice
- You and some friends invest in a chain restaurant franchise
- The large corporation where you work sells your division to you and a small group of co-workers
- A merger requires you to “pursue other opportunities,” so you do, and start a competing, smaller business with colleagues
- You are a co-founder of a startup
- You are optimizing your college financial aid position
Businesses formed for these sorts of purposes often include limited liability companies, C-corporations, and S-corporations.
Choosing which business type is best for your purpose often involves mundane and subtle issues in several key areas, including ownership, governance, allocation of profits and losses, tax planning, exit planning, and paperwork.
The discussion provided here isn’t comprehensive. That said, a brief reconnaissance of the choice of business entity issues that are likely to come up during your career or in your estate plan is time well spent.
Whether you’re wealthy or not, and whether your estate planning issues are complicated or simple, if you have a child under age 18, you need a Will, because you should nominate a guardian for your child.
The guardian will act for your child (the “ward”) with the range of parental responsibilities and authority you’d have, if you were living.
How is the Guardian Selected?
In Kentucky, decisions about appointment and removal of guardians are made by District Courts.
When appointing a guardian, the District Court appoints the person or entity who would be in the best interest of the minor, taking into consideration the person or entity nominated by the last surviving parent, or by the minor
In his or her Will, the last surviving parent of a minor may nominate a guardian for a minor, to have care, custody, and control of the minor.
A minor age 14 or older may appear in District Court or before a judge to nominate his or her own guardian.
The minor’s opportunity to nominate his or her own guardian takes precedence over a previous appointment by will or otherwise before the minor was age 14.
If you think your child between age 14 and 18 will nominate someone as guardian you don’t think is optimal (or even suitable), your Will should state your preference for the guardian you want, and explain why you think that person is better than other alternatives.
While there is no guarantee the court will prioritize your preference for a guardian over your child’s, as the Kentucky Lottery once famously said: “you can’t win if you don’t play.”
People often decide between renting or buying a place to live based on preferences and instinct: What do you want to do?
If they are incrementally more analytical, they may explore “how much house” they can “afford”. This approach is grounded in capabilities. What can you do?
I think the most useful approach to important financial planning decisions like buying vs. renting your home is one grounded in optimization: What should you do?
Owning a house has costs – lots of them. These include mortgage payments of principal and interest, property taxes, and homeowners’ insurance. While you own a house, you have to maintain it, and when you sell it, you’ll pay real estate commissions.
Owning a house also has benefits, including the rent you don’t pay, and the “forced savings” feature of paying down principal on your mortgage over time.
I created a model to compare renting and buying.
Whether or not to get a prenuptial agreement before getting married isn’t an easy decision.
The advisability of a prenup turns in large part on whether the default law that will govern the marriage if it ends by death or divorce is agreeable.
If you can live with the default rules, a prenup might not be needed.
If the default rules present problems, then a prenup may make sense.
What are the default rules for marriage, without a prenup? In Kentucky, they fall into four main areas: estate administration, alimony, division of property, and liability for your spouse’s debts.
The announcement this week of the closure of Sweet Briar College after the end of this semester was significant and sad news.
Sweet Briar was pressured by declining enrollment and a deterioration in pricing power. The board’s decision to yield to this trend while the college still has a large endowment to help fund an orderly wind-down is, perhaps, responsible.
Yet it’s still quite painful and abrupt for faculty, students, staff, and alumnae.
Sweet Briar alumnae, reasonably, seem upset that the board took its decision without consulting them.
A more open conversation about how to best serve Sweet Briar’s mission of being a cohesive, rural community for the liberal arts education of young women might have developed options.
I can think of several — a boarding school offering a post-graduate year with transferable college credit, a think tank focused on women’s education, or an intensive freshman year liberal arts program governed by a consortium of research universities (perhaps Southern ones).
These outcomes would have preserved the place and its memories for alumnae, even in changed circumstances. It’s unclear, though, whether those options were considered. Some alumnae are exploring legal options, but it may be too late to do anything effective.
The Sweet Briar story made me think about whether a Kentucky nonprofit corporation could be designed to avoid an episode like the college’s abrupt closure. I think it could be done rather easily.