Wealthy Family With Unexpected Family Business Succession Issues


 Tom Martin grew up in a wealthy family as both his father and mother were successful surgeons at the Dartmouth Medical Center in Hanover, New Hampshire.  Tom had one older sister, Ellen, and an older brother, Peter.  The boys spent their summers at Camp Winona on the shores of Moose Pond in Bridgton, Maine as had their father did years before. The summer camp experience helped mold the boy’s character into independent, productive, competitive and thoughtful young men. It also taught them that not all careers are about making money. The camp was owned by the Cobb Family, who had dedicated their lives to helping young men weather those early, difficult years of life. It was not an endeavor that produced a lot of money, but it was emotionally rewarding. Some counselors did whatever necessary in the off season just so they would have summers free to be at Winona. Many of those dedicated counselors had been with the camp for over 20 years. The Martin boys made many friends including Joe Morita, a member of the Sony Family who later wrote the book,” Made in Japan.” The book mentioned that Joe’s experience at Camp Winona was one of the most memorable of his life.  Most of the alumni of Winona, now owned by the Ordway Family, would say the same thing.

Peter went on in life to follow his parents’ careers as a surgeon and spent most of his first 20 years in Africa and South America serving the surgical needs of people in third world countries.

Louise attended the sister camp to Camp Winona, Camp Wyonegonic, also on Moose Pond in Bridgton, Maine. She learned to love the outdoors while climbing many of the largest peaks in the northern section of the Appalachian Mountains, canoed many of the less traveled rivers in Maine and New Hampshire including the upper portions of the Crooked River, the Dead Cambridge River and the Kezar River. She became a skilled fly fisherman outpacing her brothers with her ability to double haul and cast over 80 feet of floating line to her intended targets. She was an early advocate of catch and release.

Tom struggled in school but managed to get through. He had not decided on what direction life was going to take him just yet and ended up spending a couple of years as a ski bum in Colorado in the winter and as a camp counselor at Winona in the summer. It was at Winona in 1985 when Dick White, a logger from Rumford Maine, met Tom. As a single Uncle, Dick paid for his nephew to go to Winona, and visited there. That is how he met Tom, who happened to be his nephews’ counselor.

In 1963, Dick made a huge tourmaline discovery in the mountains near Rangeley Lake. He liked to prospect in his spare time. Some years later in 1982, he used part of the money to build Mountain View Nursing Home in Berlin New Hampshire, a paper mill town.  Dick decided he needed someone like Tom to help manage the nursing home as the woodsman found himself struggling with many of the social needs of the residents. Tom took the job as manager of the nursing home and Dick agreed that Tom could spend at least a half season at Camp Winona each summer as a counselor or unit director.

In the beginning, Tom had no idea how to manage the nursing home, its residents’ committees and modest social program. However, he proved to be astute and tried all kinds of activities with the residents. He convinced a local bank to open up a branch  in the nursing home one day a week and a hair salon to do the same. Later, it was one of the first nursing homes in the country to introduce the internet to the residents (a dial-up version obtained from Net Express, Inc., an early internet provider owned by friends of his in Bethel, Maine). Tom was having fun – he was helping people, learning some entrepreneurial skills and spending part of his summer at Winona.

It was a sad day in 1990 when Dick told him that he had been diagnosed with pancreatic cancer and only had a couple of months to live. Dick had never married and left his investment assets and his remaining tourmaline inventory to his nephew. He left the nursing home to Tom after making sure Tom would  continue to operate the business as they had together. The nursing home had become an important part of Dick’s life and he wanted it to continue as a home mostly for retired mill workers who needed the care.

Tom continued to operate the nursing home, married and had three children.  Life was good and relatively simple as the nursing home kept an occupancy rate of nearly 100% and expenses were carefully managed.   The quiet life was about to change.

One Monday morning in 2001, the President of Tom’s bank called and asked Tom to stop by after a Rotary meeting.  The agenda was surprising. The bank’s headquarters in Portsmouth, New Hampshire had a customer in trouble, a large but insolvent nursing home with  $15 million of debt owed to the Bank.  The bank (as part of the deal) would convert the loan to non-recourse loan in the reduced amount of $7 million but would require the corporate entity to purchase a $7 million life insurance policy to be used as security for the loan in addition to the corporate assets.  The bank also agreed to add to the loan funds needed to pay off all the corporate payables amounting to $500,000.  Tom agreed, since he wanted to keep good relationships with the vendors.  A deal was made and now Tom had an additional 400 bed facility to manage. He was 35 years old.  This acquisition was followed by six more nursing homes in New England. By the age of 45, Tom was one of the largest private owners of nursing homes in New England.

His children, Tom Jr., Diane, and Julie all worked for the business during the school year, and in the summer, if they were not at Winona or Wyonegonic, a summer camp in Maine. The family had moved to Portsmouth to be more central to the growing family business. Tom had mixed thoughts about having any of the children join him in the business, so he decided to learn more about his options. He attended several of the meetings of the New England Family Business Institute. At one of those meetings, Tom met David Reed, an accountant who helped found the Institute. Tom used a different accountant firm but made a mental note that if he ever wanted a second opinion on a financial or tax matter he would contact David. Part of that thought was stimulated by the fact that David mentioned that both his sons went to Winona and one was a CIT (counselor in training) the previous summer.

The time seemed right a few years later, just after Tom celebrated his 60th birthday, He contacted David to go over his estate planning which had been neglected for many years. His wife, Mary had pushed for some action as her parents both had died within the past year and it was discovered that they never updated their estate documents, causing problems which could have been taken care of with better and up to date lifetime planning.

Tom met David in his office in Portland.  David had since retired from KPMG, a national accounting firm, and opened a family business consulting practice. After a long conversation, Tom decided to retain David. David told Tom that he needed a complete list of all Tom and Mary’s assets including copies of deeds, property appraisals, life insurance policies, retirement plan documents and assets, lists of securities, personal and business tax returns and financial statements. David sent Tom a checklist(1) of the information that he needed and Tom was prompt in supplying the information.

David carefully reviewed all the information, noting his initial thoughts and additional questions. He quickly saw that the Martin estate approached $70 million and that there were a lot of issues which needed to be addressed.  It was time for a face to face planning meeting.

David said he would come to Tom’s office in Portsmouth to meet with Tom and Mary and tour the Portsmouth facility. David always made sure he visited every client’s place of business to get a feel for the enterprise and causally meet the management team. David was surprised and puzzled by the fact that Mary was not there to attend the meeting. To David, that made the meeting incomplete and he initially worried that some marital issue might exist or that Tom was just very controlling and this would be a one sided project. Fortunately, no such problem existed; Mary just had a last minute conflict. Tom told David what he and Mary wanted to do with their estates upon their death, and how and when the it would be distributed to their children. Tom emphasized that he did not want to currently make large gifts to the children as he wanted them to earn their way in life.  In fact, he preferred that they not know that the family was quite wealthy.  David inwardly smiled as he had long ago learned that children always know more than their parents think, but usually do not really care about Family wealth until later in their lives.

While discussing Tom’s goals for the businesses, Tom mentioned a recent conversation with the children during which he asked them if they wanted to come into the family business. Each of them had said no emphatically. This surprised David as the children ranged in ages from 17 to 23 and all were still in school. He thought maybe they were too young to make that decision. Tom had gone on further to say he wanted the business to go to the management team, and had already given them stock as year-end bonuses with enough of a cash bonus at the same time for them to pay the income tax on the stock bonus. He did not want to use one of the “fancy” stock plans his lawyer told him about. He asked David, however, if creating an ESOP ( Employee Stock Ownership Plan) would be a good way to transfer the ownership to the employees. David avoided the question for a later discussion, and asked diplomatically if in his next visit he could chat with Mary and the children individually. David used the statement he often made with clients that he “viewed his assignment, in part, as a representative of the children and would like to meet them.” Tom seemed to think this was not necessary, but agreed anyway.

David wanted to have those conversations before he drafted the promised memorandum outlining his planning thoughts for the Martin Family. He especially wanted to give his thoughts for the business, so he arranged the meeting for the next week. Mary proved to be a very intelligent woman who was busy in her own life with several board memberships and alumni activities for the University of New Hampshire. It was obvious that Tom and Mary had discussed their goals before David first met with Tom as she echoed most of Tom’s comments. But when David mentioned the conversation that he had with Tom about the children not wanting to be part of the business, he was surprised at Mary’s reaction. She was very clear that Tom had some negative influence on the children’s decision, by actually saying to the children, “I do not want you to feel forced to come into the business as that can cause serious family problems so I assume you would like to consider other careers.”

The children simply nodded their heads to dad. David knew then that the conversations with the children would be more important than usual. He also knew that trying to elicit candid comments from teenagers and young adults could be a problem so he asked Mary’s help to give him some insight into each of the children and further asked her to ask the children to be forthright in their conversations with David.

David started each of meetings with the children by stating  “whatever they said to him would be held in confidence.” David started with the oldest child, and after a pleasant social conversation (mostly about Winona) David learned that Tom Jr. really was interested in the business and working with dad. Tom Jr. explained that was the reason why he was majoring in business at UNH; he saw that it could help the company.  The conversations with the other two children were similar.

David decided to ask Tom to call a family meeting, with David facilitating the discussion about the family business. He alerted Tom that he may be surprised about the children’s’ view on future business involvement and ownership. David asked Tom why he had hesitations about the children coming into the business and learned that Tom had always felt he was forced to enter a difficult business due to his loyalty to the wishes of his benefactor. He simply did not want his children to feel he was pushing them into the business, and that he himself realized he had actually been “pushed” in the opposite direction. The family meeting opened up the conversation and resulted in Tom postponing any further stock transfers to employees.

Two years later, Tom actually bought back the stock previously given. Both Tom and Mary have expressed their gratitude many times for David’s persistence in helping the Family with this major decision. The oldest son is now the CEO of the business which is doing very well.



Lifetime and estate planning checklist:

A. Documents needed (copies of original/signed/recorded documents)

  1. Deeds to all property owned personally or owned by a controlled entity

  2. Wills, trusts, living wills, powers of attorney, health care proxies and any similar documents

  3. Copies of life insurance policies noting policy owner, beneficiary, and cash value and annual premium

  4. Declaration page of all property and casualty insurance policies held personally  or by a controlled entity including any umbrella coverages (excess indemnity coverage)

  5. Summary of health care insurance coverages including any company medical reimburse plan or health savings account

  6. Copy of long-term care policies noting who pays the premium

  7. Copy of any pre or post-nuptial agreement

  8. Summary of retirement plans noting plan balances and name of beneficiaries

  9. Individual income tax returns (Federal and state) for last two years

  10. Tax returns for any controlled entities (last two years)

  11. Financial statements for all controlled entities (last two years)

  12. Copies of appraisals of any real estate, businesses, and/or personal property

B. Personal financial information (personal financial statement)

  1. List of bank accounts noting ownership and balances

  2. Investment information (current statement from investment managers which show balances and account ownership)

    1. Any securities held personally

    2. Amount of equity in any club memberships

  3. Real estate owned, who owns it, description of what it is and an estimate of value

  4. Private securities owned including controlled entities noting ownership and value

  5. Collectibles and antiques noting ownership and estimate of value; Artworks, jewelry etc.

  6. Boats

  7. Accounts and notes receivable

  8. Any other assets

  9. Mortgage debt noting name of creditor, current balance and who the debtor is

  10. Accounts payable (current balances of credit cards etc.)

  11. Other debts

  12. Charitable pledges outstanding (to whom and amount still owed)

  13. Contingent liabilities

C.   Expectancies

  1. Estimate of amounts expected to be received from parents or others; Do estate planning documents have disclaimer clauses?

D.  Names and birth dates of children, noting if any child has any special needs

                                     1.  Estimate of assets directly owned by each child

                                     2.  Do children have wills?

E.  Names and contact information of advisors (attorney, accountant and insurance agents)


As  David started drafting his promised memorandum many of his initial comments questions were about the $30 million in life insurance policies on Tom’s life and on the $2 million in an IRA account.

TO BE CONTINUED – Family Business Life Insurance Issues


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David Hawkes (aka David Reed) is a tax, financial planning, family & small business consulting expert. He has worked with thousands of clients and saved them millions of dollars in taxes over the course of his career. David is also a former minority shareholder of the Boston Red Sox.