A Look at Goodwill
BY JOHN S. SCHUMANN Partner, Los Angeles Office
Presented before the Life Insurance and Trust Council of Los Angeles — April 1960
HEN ASKED to discuss the subject of goodwill a couple of weeks ago, I tried to explain that while the certified public accountant might be a member of the team that helps the buyer and seller agree on a price or that assembles data to convince a court concerning a fair amount for goodwill in a tax case or a case dealing with the interpretation
of a buy-and-sell agreement, the accountant is not a "goodwill
expert" on his own. There is no need to dwell on this—I just want you to know that I did not write the very flattering introductory biography.
DEFINITION OF GOODWILL
Before we get into this subject of goodwill, it might be well to decide why it is we are talking about it at all. There are a number of reasons.
From the standpoint of the trust officers present, we all agree that if there is not a good definition—a good formula—for making computations
under a buy-and-sell agreement, the trustee is risking a long, drawn-out legal battle if he accepts the trust for an estate that is a party to such an agreement. Certainly the attorneys for the seller will insist that amounts under any loosely drawn buy-and-sell agreement were intended to be based on high present-day values— whether shown by the books or not—and will insist that values other than those related to recorded assets are part of the consideration to be paid by the surviving partner or stockholder. And the same attorneys
can insist just as loudly on the other side of the argument if they happen to represent the surviving buyer.
PROBLEM AND OPPORTUNITY
Our life insurance representatives have the day-to-day problem— and opportunity—of seeing to it that the life insurance needs of a business and its owners are met, and these cannot be met without looking to the day when one or more of the owners must buy out the interest of an estate of one of his deceased associates. A difficult