Estate Planning for South Dakota Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


With the current market conditions many South Dakota (SD) 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 South Dakota 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 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 South Dakota 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.

Developing a plan to transfer the business will be time consuming, but done correctly will allow the business to be successfully transferred in an acceptable manner. An estate plan for a pharmacy owner does not need to be changeless process. Fine-tuning, updating, and amendments are recommended as government regulations, economic conditions, and personal expectations change.

Estate planning allows a South Dakota independent drug store owner to anticipate and arrange for the transfer of the drug store. The plan will be formatted in attempts to eliminate uncertainties, assist the transfer by trimming expenses, and reduce taxes.

The process may 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 documents. All of the different aspects of the estate planning are to provide the pharmacy owners in SD coordinated directives.

When there are non-family members as partners in the drug store business, it is essential that the estate planning incorporate a Buy-Sell Agreement. A buy-sell agreement, governs the transfer of the business between South Dakota pharmacy partners. The agreement may also be known as a partner buyout agreement, or a business will. To help protect the family in the event of a partner’s death, the buy-sell agreement may be funded with a life insurance policy.

The transfer of the pharmacy, estate planning, and buy-sell agreements should incorporate a pharmacy business valuation performed by a third party that has expertise in the pharmacy industry, performs several pharmacy business valuations every year, and has up-to-date industry data as a foundation for the conclusions. Relying on simple accounting formulas, multipliers, or valuators without experience in South Dakota pharmacy will not provide an accurate business valuation.

Most SD pharmacy owners spend a significant part of their life building the business. Their efforts should not be torn down because the pharmacy owner refuses to accept their own mortality and plan accordingly. Sometimes, the only pharmacist in small pharmacies is the owner. If a licensed pharmacist can't fill the scripts, the customer files are required to be transferred to another pharmacy by law. Because of this, a pharmacy’s business value may plunge downward to a negligible figure in a matter of days after the passing of the owner. An estate plan outlines contingencies that should address this issue. It is unfortunate that due to not having an effective plan in place, a number of pharmacy owners in South Dakota die every year and their family is left with an asset that has very little value.

Additional Tips for Estate Planning: 1. When the sole means of income for several family members is family drug store, it becomes even more necessary to have a plan for succession in place.
2. By developing estates with clear directives, disputes can be avoided.
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 South Dakota pharmacy owner especially if there are some family that work in the business and others that don’t.