E-tailing and Estate Planning

Snip20140925_1E-tailing is the term for selling products online. These days, nearly anyone can start up their own e-commerce website. One study determined that there are 102,728 U.S. e-tailers generating at least $12,000 a year in revenue, 61,728 of them boast revenues of $25,000 or more. Forbes, “How Many U.S.-Based Online Retail Stores Are On The Internet?”

It’s not just Wal-Mart and Amazon making profits online. According to data cruncher RJ Metrics, the mean revenue for small e-commerce site was $1.5 millions and the median was approximately $500,000. RJMetrics, “How Many Ecommerce Companies Are There?”

Perhaps you or someone you know has started an e-commerce website to sell finished products or homemade crafts. Etsy.com is a premier website for selling arts and crafts online – creating a virtual, global marketplace for artisans who previously spent their weekends at craft fairs and festivals. This one website alone hosts more than a million active shops, making it easy for crafters to sell their wares without having to create their own website. Etsy, “At a Glance”

Other e-commerce resources, such as Weebly, Squarespace, Shopify and Bigcommerce, enable regular folks to create an individual e-tail site by using an automatic Web builder.

But what happens to small e-commerce sites – not to mention their revenues – when the owner passes away? Orders stop being received and fulfilled. Customers go away. Some relative discovers a monthly website hosting charge on the deceased owner’s credit card statement and cancels the service. Many times, the website isn’t even disabled, joining scads of abandoned businesses that create a virtual black hole in Web space. Forbes, “Digital Asset Planning for Retirement – A New Task for Financial Advisers”

Many smaller e-tail shopkeepers don’t think about including their side business in their estate plan. For some, this could be a costly oversight — especially if the revenue it generates could become a source of necessary income. Let’s take a look at a case study of what can happen.

Earl Olsen was an IT engineer who worked a number of lucrative jobs throughout his career. Earl and his wife, Emma — who stayed home to raise four boys — retired in their large family home. They received ample retirement income from various pensions, 401(k) and Social Security benefits. Once he retired, Earl created an e-commerce website, where he sold T-shirts with original witticisms his grandfather used to say. His designs became popular enough to generate steady revenues of about $2,000 per month.

Earl didn’t create any documentation about how he ran his business — such as the order and fulfillment process, suppliers and financial procedures. No one even really knew how much he earned; just that it was enough to spend freely when they went on vacation and buy generous gifts at Christmas.

Then Earl passed away. His pension and Social Security benefits were reduced to half of their previous amounts. Unfortunately, the drop in income was not enough to sustain Emma’s lifestyle in their large house, so she sold the family home and moved in with their eldest son. Eventually, she noticed and cancelled all recurring charges on Earl’s credit card statement.

What the family didn’t realize at the time was that the extra $2,000 a month Earl’s little side business generated would have been enough to allow Emma to live independently in their home. In fact, too late did the family learn that their grandson — a sophomore in college pursuing a technology degree — was interested in taking over the website to gain experience for his resume. Had Earl considered his website an asset, he may have taken the time to document the mechanics of the business and its net worth as part of his estate. In turn, this digital asset could have been a boon for Emma’s retirement income — not to mention for his grandson’s burgeoning career.

Despite the fact that many of us use the internet in our daily lives, it’s not unusual for people to forget to include digital assets as part of our overall net worth. Digital assets can include anything from an e-commerce business to our movie, book and iTunes libraries. Internet security provider McAfee estimates that the value of digital assets average about $35,000 per person worldwide. For small business owners like Earl, that number could be ever higher. Forbes, “Digital Asset Planning for Retirement – A New Task for Financial Advisers”

If you would like to speak to someone about including your digital assets or e-tail business in your estate planning, please contact us at 801-990-5055.

Our firm assists retirees and pre-retirees in the creation of retirement strategies utilizing insurance products.