Small company survived unexpected death of its founder through advance estate planning.
In April 1992 Sharon Goode, the charismatic chief executive and founder of Prestige Leather Creations, an $18-million belt manufacturer and three-time Inc. 500 company, died tragically at the age of 47. One year later the fact that Prestige Leather has not only survived but thrived is remarkable. And the Vernon, Calif., company's experience offers a valuable lesson for the owners and chief executives of other growth companies about the importance of estate and succession planning.
Ironically enough, Sharon Goode -- like many who've founded companies at a young age -- had never given much thought to the subject until she hired a chief financial officer, Kyle Wescoat, back in August 1990. "When I joined the company, it had grown very quickly, and management's focus was very much on promoting growth," Wescoat recalls. Here's what the CFO suggested instead:
Insurance. "It's easy to convince yourself that you won't need insurance if you just plan to leave your business to your spouse" -- because spousal inheritances are treated by the IRS as tax-free -- "but you'd be wrong," Wescoat stresses. "By setting up a system of key-person insurance on Sharon, as well as on her husband and Prestige's co-owner, Rick, and all other key officers, we were positioned to receive cash that we might very well need in order to hang on if something happened to any of our top-level people."
Sharon and Rick Goode also bought a second-to-die life-insurance policy that insured both of their lives: "These policies pay only one benefit, upon the death of the second insured person. That way, when the company eventually passes to their child and estate taxes are due, there will be enough insurance money to pay for them," says Wescoat.
Living trust. All of Sharon Goode's corporate assets, as well as personal investments that included real estate holdings, went into a living trust whose trustee was Rick Goode. (A similar trust was set up for him, originally with his wife as trustee.) "That saved an enormous amount," explains Wescoat, "since you're charged 2% on all assets that pass through probate, which you don't have to go through with a living trust."
Management-succession plan. This simple item may have been the most important of all. "We had a plan for what would happen in the event of Sharon's death, including Rick's taking over as chief executive. And it had a tremendous mental effect on everyone -- customers, suppliers, bankers, employees. It told them we were a thoughtful company whose management had made preparations for the unexpected," recalls Wescoat. "By conveying to everyone that we were in control, despite the tragedy, we bought ourselves some invaluable time. And that helped us get the company going again." -- Jill Andresky Fraser