Leaving a Legacy

Guidelines for the Inheritance of a Melaleuca Business

LEAVING A LEGACY Guidelines for the Inheritance of a Melaleuca Business

One of Melaleuca’s axioms from the very beginning has been “building a business to last a lifetime.” Over the years, that axiom has expanded to include your children’s lifetimes and even the lifetimes of your children’s children. In essence, that is our goal: to help you build a business that will last for generations. We want you to be able to build a business that will survive into the next century and become something substantial you can pass on to your children and to their families. We want your gift to them to be a viable, vibrant business with reliable income to provide resources to them, their children, and their grandchildren. We know that a Melaleuca business, when properly operated, has the ability to far outlast those who originally built it and can be a meaningful source of income for your heirs for decades to come based on their ongoing engagement, commitment, time, and effort.

Appropriate principles and guidelines outlined in this brochure are designed to help you comply with state and federal legal requirements while also protecting the integrity of the Melaleuca business model and Compensation Plan for future participants. You can design your will in a way that will benefit all of your children, but only one of them can be responsible for managing your Melaleuca business (a business cannot have several CEOs at once). Therefore, one of the most important things you can do, beyond drafting your will, is to make sure you prepare one of your adult children to manage your business after you are gone. The child you designate will be responsible for fulfilling all the requirements of the business. The future of your business and your legacy will be in their hands. If they’re going to run the family business, it’s important that they know how to do exactly that.

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PRINCIPLES

The following inheritance guidelines explain how inheritance works and what you need to do to ensure your business continues after you are no longer here to operate it. Inheritance is governed by Melaleuca’s

Statement of Policies, which is a part of your Independent Marketing Executive Agreement (IMEA) with Melaleuca. However, before delving into the details, it’s important to understand the principles behind the rules: Melaleuca’s approval is necessary for the transfer of any business, including from an inheritance. The intent of the Inheritance of Business Policy is to allow for the transfer of a Melaleuca business from one generation to another. Therefore, transfers to nonfamily members are discouraged and will not normally be allowed. Exceptions must receive special written approval from Melaleuca. Melaleuca does not permit the transfer or sale of a business for money or other consideration, and the guidelines of inheritance are no exception. Melaleuca has long endeavored to establish measurements and qualifications to compensate those who play an ongoing role in the sale of products by Melaleuca to customers. To qualify for any compensation, Marketing Executives (including those who inherit a business) must fulfill a bona fide leadership role and fulfill the ongoing responsibility to consistently service, supervise, motivate, train, and assist Marketing Executives in building their marketing organizations in order to promote Melaleuca’s products and the Melaleuca income opportunity. While the right to receive compensation can be inherited, the right to recognition cannot be inherited. Recognition will be based on a Marketing Executive’s own accomplishments, not the accomplishments of the person from whom the business was inherited. In other words, an inherited Executive Director business will be compensated as an Executive Director but will not be recognized onstage at Melaleuca events or be celebrated as an Executive Director until that status has been personally earned by the recipient. Melaleuca reserves the right to disallow any inheritance that is not clearly consistent with applicable law. In addition, Melaleuca will not permit any inheritance that is inconsistent with these principles or that otherwise attempts to manipulate or get around the requirements of the Statement of Policies or the Compensation Plan.

SUMMARY In most cases, these are the key steps to set up a successful succession plan. List who will inherit your business in your will or trust document (generally your spouse or one of your children or grandchildren). If multiple children will share the business, indicate who will manage the business (Designated Manager) and work with your attorney to establish a legal entity in which the children will have ownership. Keep in mind that there can only be one Designated Manager, and that person must be willing to do all the work a Melaleuca business requires. Review with your attorney to make sure your will complies with your state and local laws. Make sure the individual you designate understands how to run a Melaleuca business well ahead of inheritance. In most cases, it would make sense to have the heir enroll today and begin learning Melaleuca’s policies and principles and how to fulfill Melaleuca’s leadership responsibilities. It is not advisable to gift the business to someone who has not previously shown interest in operating and benefiting from a Melaleuca business.

Call Melaleuca with questions.

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Policy 17 permits the inheritance of a Melaleuca business to a single person, a married person, or a trust or corporation that complies with Melaleuca’s Statement of Policies and the related applicable guidelines and contracts. In general, upon a Marketing Executive’s death, Melaleuca will recognize the inheritance of a Melaleuca business as designated by will or other legal means to the following persons or entities: WHO CAN INHERIT A MELALEUCA BUSINESS? A married couple or individual who does not already have an interest in a Melaleuca business. Note: Per Melaleuca policy, Marketing Executives may not operate or have a financial interest in more than one Melaleuca business, which means that unless Melaleuca expressly permits otherwise, a current Marketing Executive would not be allowed to inherit another business. However, Melaleuca will generally (almost always) make exceptions to this rule for inheritance by or for your children or grandchildren. A trust or corporate entity whose sole beneficial owners and officers are a married couple or individual in accordance with Melaleuca’s Statement of Policies and related guidelines for ownership of a business by a trust or corporate entity.

In the case of an inheritance where Melaleuca allows for multiple beneficiaries, one beneficiary will become the Designated Manager, and that person must have at least as much interest in the business as any other beneficiary. The Designated Manager will be responsible to take the actions necessary to satisfy the requirements of Melaleuca’s Statement of Policies and Compensation Plan. The Designated Manager and, in most cases, the other beneficiaries will be required to agree to the terms and conditions of the IMEA as well as an additional inherited business addendum. Changes of ownership or in the Designated Manager after inheritance are discouraged and will be permitted at Melaleuca’s sole discretion and, in any case, must be approved by Melaleuca in advance or the inherited business will no longer qualify for commissions. Marketing Executives may not share ownership in a Melaleuca business with any person other than their spouse, which means that except where Melaleuca expressly permits otherwise (e.g., for married couples), multiple individuals cannot share or inherit a business. Melaleuca will generally make exceptions to this rule so parents can pass their business to multiple children, allowing siblings to share a business.

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THE MECHANICS OF YOUR WILL OR TRUST Inheritance is governed by the law of the applicable

state law and transferable only with Melaleuca’s approval notwithstanding the law that applies to any probate or other estate planning proceeding. The Melaleuca legal department can answer your questions or those of your attorneys and tax advisors about these guidelines as they relate to who can inherit your business and how it can be inherited. However, please note that Melaleuca cannot provide you with legal advice about how to draft your will, pay taxes, or otherwise assist in managing any part of your estate, including your Melaleuca business.

US state or Canadian territory and there is no specific language required by Melaleuca in the will or trust document so long as the inheritance is completed as set out in these guidelines. To the extent that a Marketing Executive attempts to directly or indirectly avoid the principles and guidelines set out above, Melaleuca reserves the right to not recognize the Melaleuca business intended to be inherited until it is in compliance. Please note that the contractual rights associated with a Melaleuca business are governed by Idaho

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FREQUENTLY ASKED QUESTIONS

How will the inherited business be treated by the Melaleuca Compensation Plan?

The Melaleuca Compensation Plan is designed to reward Marketing Executives for their consistent efforts in referring customers and demonstrating leadership in accordance with Melaleuca’s Mission Statement. All compensation is based on the sale of products to satisfy genuine consumer demand. Consistent with Policy 23, the inherited business must provide ongoing supervisory and leadership functions for their organization, even after inheritance. A business that is inherited will be based on the organization and Compensation Plan that exist at the time of inheritance and be subject to any changes in the Compensation Plan after that time. Previously “grandfathered” compensation rules, credits, or exemptions are not inheritable and will not continue with the business. As with any Melaleuca business, hard work and commitment are required to be successful. Success in inherited businesses will also require ongoing efforts to foster relationships in your organization and to develop new leadership. All inherited businesses, regardless of status, are required to provide leadership to their organizations in order to qualify for compensation. Leadership will be evident based on consistent application of the Seven Critical Business-Building Activities—especially evidence of developing new personally enrolled leaders, enrolling new personal customers, and growing your organization and customer base. What if I don’t have any children or grandchildren? Although inheritance is generally a family matter, Melaleuca recognizes that not all Marketing Executives have living children to designate as heirs. If there are no immediate or extended family members available as possible candidates to inherit the business, Melaleuca will consider alternative arrangements on a case-by-case basis. Can an inherited business hire someone to be a proxy in performing the duties of the Marketing Executive in managing the business on behalf of the beneficiary(ies)? No. The Designated Manager must be a beneficiary and must own and control at least as much of the business as any other person or entity. What do I need to do for the inherited business to be successful? You should designate an heir who understands the activities associated with your business or, even more ideally, who has demonstrated the ability to operate their own Melaleuca business. In most cases, the person inheriting the business will be a family member, and that person can enroll and begin building their own business prior to the inheritance so that they are familiar with the mechanics of a Melaleuca referral business well ahead of inheritance. If my heir already has a Melaleuca business, do they have to produce Leadership Points for both businesses? Every Melaleuca business needs to be nurtured to thrive and requires ongoing leadership to be successful. If the person inheriting your business already has their own business and produces

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Leadership Points in that business, Melaleuca will combine the Leadership Points from both their business and the inherited business to determine the status and bonuses for both of the businesses. The individual will only need one Personal Production Account. I have just inherited a Melaleuca business. Now what do I do? Provide Melaleuca’s Business Development department with the legal documentation regarding the inheritance. The Designated Manager must sign an IMEA on behalf of the inherited business, and other documents may be required depending on the ownership structure. Why can’t I leave my business to another Marketing Executive who is not a family member? This would be a way to circumvent Melaleuca’s longstanding restriction on the transfer or sale of a business. Permitting this would create incentives contrary to the principles behind the Melaleuca Compensation Plan to the detriment of other Marketing Executives. I want to leave my business to my three children. How does this work? Melaleuca will generally make an exception to its one individual or married couple ownership restrictions in the case of an inheritance to multiple family members. One family member will become the Designated Manager and will sign an IMEA. If the transfer is to a legal entity, the legal entity will also sign a contract restricting future transfers of interest and agreeing to comply with Melaleuca’s Statement of Policies. Can the Designated Manager of the inherited business be changed? Melaleuca will use its sole discretion to consider (approve or not approve) a change in Designated Manager to another family member on a case-by-case basis. Consideration can be made as an accommodation in exceptional circumstances, but not simply for convenience. Can my children transfer or sell their interest in my Melaleuca business? No. However, their interest can be inherited. Melaleuca may permit transfers among common beneficial owners for extenuating circumstances. How does inheritance work in the case of a legally married spouse? If you leave your business to your surviving spouse, then the surviving spouse can take over the business and will be recognized the same as if the deceased spouse were still alive. Can I leave my Melaleuca business to someone other than my spouse? In other words, can I disinherit my spouse? This is a complicated question of state law, and the answer depends on many factors, including where you live, how you have structured your assets, whether your spouse agrees, and what other assets of value you are leaving to your spouse. Melaleuca cannot provide legal advice on how to divide your assets in order to comply with state law.

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