Estate Planning for Pharmacy Owners in Montana

By Brad MacLiver
Authorship and profile at Google


With the current market conditions many MT pharmacy owners are experiencing lower profit margins and have considered selling. A pharmacy industry roll-up has been occurring for a number of years, consolidating the pharmacy seller’s customer traffic into fewer pharmacy locations. However, there are a number of pharmacies that are not in a geographic location with other nearby pharmacies, so consolidation can’t take place. Some Montana pharmacy and drug store owners, despite where they are located or what is happening in the industry, have taken a stance and won’t consider selling. However, just like paying taxes, an exit of the business, is eventually inevitable.

Estate Planning is a topic many people, in all industries, shy away from. For the pharmacy owner in Montana who works 6 days a week, takes very few vacations, fills scripts all day, then mops the floor and does the books at night, there usually isn’t much time to consider additional things such as estate planning. However, knowing that there will eventually be a transfer of the business, it is important for the pharmacy owner to consider a proper succession plan for the pharmacy business.

It will be time consuming to develop a plan to transfer the business, but it will allow the business to be successfully transferred in an acceptable manner when done correctly. An estate plan for a Montana pharmacy owner does not need to be changeless process. As government regulations, economic conditions, and personal expectations change, it is recommended to fine-tune, update, and make amendments.

Estate planning will allow a pharmacy owner to both anticipate and arrange for the transfer of the drug store. The estate plan will be formatted to attempt to eliminate any uncertainties, assist transfer by trimming expenses, and reduce taxes.

It is a possibility that the process will involve Trusts, Wills, Living Wills, Power of Attorney, Medical Power of Attorney, Business Valuations, Life Insurance, Charitable Remainder Trusts, Buy-Sell Agreements, and other legal documentation.  The various aspects of estate planning are aimed to provide the Montana pharmacy owners with coordinated directives.

When the drug store business has non-family members as partners, it is necessary that the estate planning incorporate a Buy-Sell Agreement. A buy-sell agreement will govern the transfer of the business between MT pharmacy partners.  This agreement is also known as a partner buyout agreement or a business will. By funding it with a life insurance policy, the buy-sell agreement helps protect the family in the event of a partner’s death.

Estate planning, buy-sell agreements, and the transfer of the pharmacy should incorporate a pharmacy business valuation completed by a third party that has expertise in the pharmacy industry, performs a large number of pharmacy business valuations each year, and has current industry data as a basis for the conclusions. Using simple accounting formulas, multipliers, and valuators inexperienced in pharmacy will not provide an accurate business valuation.

Most pharmacy owners in Montana spend a major part of their life building the business. The efforts should not disappear because the pharmacy owner refuses to accept their mortality and plan accordingly. The only pharmacist in some small pharmacies is the owner. If the scripts can’t be filled by a licensed pharmacist then by law the customer files must be transferred to another pharmacy. Due to this, a pharmacy’s business value may drop to a negligible figure in just a few days after the passing of the owner. Contingencies outlined in an estate plan should address this issue. Unfortunately due to not having an effective plan in place, each year a number of MT pharmacy owners die and their family is left with an asset with very little value.

Tips:        
1. When the family drug store is the sole means of income for several family members it becomes even more crucial to have a succession plan in place.
2. To avoid disputes, estate plans should be developed with clear directives.
3. Minimizing tax liabilities is a major objective for most completing an estate plan, therefore expert tax advice should be sought.
4. Many on-line documents and books are available that provide advice and documents for developing an estate plan. When going the self-help route, it is advisable to have a paid expert review the completed documentation to ensure that it can be legally complied with when the time comes.
5. While developing the estate plan it is essential to talk with children and other family members of the MT pharmacy owner especially if there are some family that work in the business and others that don’t.