Preparation for an Estate


A number of years ago a dominant sibling took over the operation of a business from the elderly founder of a company. This sibling has made some poor decisions and has allowed greed to enter his heart. What should the other siblings do to attempt to save the company from bankruptcy? 

Based on my experience I recommend that the other family members first secure the services of a competent lawyer. They should then obtain power of attorney from the patriarch of the company, establish a board of directors and take control of the company from the dominant sibling. It will be necessary to remove the dominate sibling from the daily operation of the company. They may elect to allow the dominant sibling to retire to a comfortable life. A new strong leadership team including a CEO, CFO and COO must be established by the board of directors, and every effort should be made to correct the existing problems.

Family members must immediately conduct a thorough business analysis, specifically:

  • Reconcile bank accounts
  • Review accounting records to gain an understanding of the current cash position and projections of the cash needs for the upcoming year
  • Examine contracts to identify any reasonable opportunities to lower costs
  • Evaluate new projects and pare back as necessary
  • Review the company’s reputation in the community and make necessary efforts to improve the image of the company
  • Identify existing and contingent liabilities, and contact banking officials accordingly
  • Classify obligations to government entities that have an impact on the company through regulation or obligation. Review all regulations and determine compliance status
  • Satisfy or negotiate obligations to the Internal Revenue Service. (The last thing a struggling company needs is the IRS pestering them for employment tax obligations.) 

If necessary, after a review of the bank accounts and conversations with the accounting department regarding the identification of any abnormal payments, related to the dominant sibling or his family members, consider hiring a forensic accountant.  An experienced forensic accountant with specific knowledge and understanding of business and the elements of fraud can be of great benefit to the struggling company.

If the dominant sibling has taken money, it is imperative to determine who authorized the disbursements and to accumulate the amount of funds extracted. Minimally, it should be determined if the funds were reported as W-2 Wages, Form 1099 income or hidden in the books.  Regardless of how the funds were treated, the full amount of the extracted money should be determined so that it can be considered a prepayment of funds due upon the death of the patriarch. The remaining siblings should also consider issuing a Form 1099 to the dominant sibling and reporting to the IRS for each year the money was extracted. 

The most important thing is the survival of the company, which provides income to family members and wages to employees of the company and has, over a period of time, helped the economy of the community.

If you or your family company is experiencing anything similar to what has been described above, call Sage Investigations, LLC at 512-659-3179 for a free 20 minute consultation. Let Sage shed light on the truth for you or your clients.