Item 19: Should I include an "Earnings Claim" or will it get me sued?

If you own a franchise and are updating your estate plan, you may be wondering whether describing your business's performance could be treated as an “earnings claim” under franchise disclosure rules. It is a fair concern. The wrong words in a will, trust, or letter to family can create confusion for heirs and fiduciaries—and, in some settings, could be misused or misunderstood in ways that trigger franchise compliance risk.

This article explains what Item 19 “earnings claims” are, why they matter to franchise owners, and practical ways to organize business information in your estate plan without making projections or promises. Because franchise and estate laws vary by state, coordination with qualified advisors is essential. For related guidance, see How Do I Know If I Need a Revocable Trust?.

What Item 19 Means and Why Franchise Owners Hear About “Earnings Claims”

In the franchise world, “Item 19” refers to the section of a Franchise Disclosure Document (FDD) where a franchisor may choose to provide a Financial Performance Representation (often called an “earnings claim”). The rules that govern these statements—what can be said, how it must be substantiated, and how it must be presented—are part of franchise sales compliance. The goal is to prevent misleading statements to prospective franchisees. For related guidance, see Should I hire a "Franchise Consultant" or a "Franchise Lawyer" first?.

For a franchise owner working on an estate plan, this background matters because business performance information can circulate beyond its intended audience. A well-meaning letter to heirs, a trustee memo, or a binder of “how the business runs” can sometimes include language that looks like a promise of profits or future results. If that language is later handed to a prospective buyer or used in a way that resembles franchise sales activity, it may raise compliance questions.

Laws and regulatory requirements are not identical in every jurisdiction. Federal rules apply, and states may have their own franchise and securities laws that add requirements or nuances. Estate and fiduciary duties also vary by state. An approach that is acceptable in one place may not be appropriate in another.

Where Estate Planning and Earnings Claims Can Overlap

Several common estate planning documents and communications can unintentionally brush up against the concept of an earnings claim:

Letters of instruction to family or fiduciaries. Informal letters often explain how the company makes money, what margins look like, or “what to expect this year.”
Trustee or executor guidance. Notes that tell a trustee to continue operations based on a “typical” income level, or that assume a specific growth rate, can sound like projections.
Buy-sell or succession roadmaps. Summaries that describe what a reasonable buyer might pay can shade into financial representations if not framed carefully.
Owner's binders or business continuity plans. Checklists that include sample P&Ls, cash flow summaries, and “run rate” statements may be read as forward-looking if not clearly dated and contextualized.
Communications with potential buyers. When fiduciaries market or transfer the franchise, the information they share may be scrutinized for compliance with franchise rules and any limits in the franchise agreement.

None of this means you should avoid organizing your business information. On the contrary, a clear estate plan often requires it. The key is how you present the information, who will receive it, and what guardrails you put in place.

Risks of Including Projections or Promises in Wills, Trusts, or Letters to Heirs

Including projections or absolute statements about profitability can create several risks:

Compliance risk in a sale or transfer setting. If materials containing projections or promises are shown to a prospective buyer or otherwise used in a way that resembles franchise sales activity, they may be treated as an earnings claim under franchise rules.
Misinterpretation by heirs or fiduciaries. Heirs and trustees might mistake illustrative numbers for guarantees, leading to disputes, pressure to “hit the numbers,” or decisions that are not grounded in current facts.
Discoverability and documentation risk. Estate documents and fiduciary files can be requested in disputes. Casual statements (“the store should net $X monthly”) may be taken out of context.
Conflict with your franchise agreement. Franchise agreements often limit how and to whom financial performance information may be presented. They may also impose conditions on transfers.
Fiduciary liability risk. Trustees who rely on informal projections instead of current data may face criticism if results differ.

Consider avoiding forward-looking language in dispositive documents (wills, trusts) and in general family letters. If projections are truly needed for internal planning, keep them separate, clearly labeled as assumptions for planning only, and accessible only to the appropriate advisors—not as statements for marketing, sales, or buyer solicitation.

Before you finalize any estate planning language about your franchise's performance, it is prudent to speak with counsel who understands both estate planning mechanics and how franchise information can be shared safely. To discuss hiring counsel for your plan, schedule a consultation through our contact form or call 414-253-8500. We can talk through your documents, transfer provisions in your franchise agreement, and the guardrails that help reduce risk.

Safer Ways to Share Business Information in Your Estate Plan

The goal is to equip your fiduciaries with what they need to administer the estate or trust—without making promises about future results. The following approaches can help:

Use historical, dated information—clearly labeled. If you include financials, provide prior-year P&Ls and balance sheets as final, signed CPA statements or year-end internal reports. Label each document with the period covered and “historical information for administrative reference.”
Favor neutral descriptions over projections. Explain operations, key vendors, staffing structure, seasonality, marketing channels, and recurring obligations. Avoid statements like “we will” or “you can expect.”
State that no financial performance representation is intended. Include a short, plain-English disclaimer in your trustee guidance: that the materials are for administration, not an offer or representation of earnings, and that any sale or transfer communications must follow applicable franchise and state laws.
Rely on third-party valuations for value—not earnings promises. If the plan requires an estimate of value, consider a business valuation prepared by a qualified appraiser, recognizing it is an opinion as of a specific date and not a projection of future income.
Direct fiduciaries to current data, not old projections. Instruct your trustee to obtain up-to-date financials from your accounting system and CPA before making operational or sale decisions.
Separate internal planning from communications to potential buyers. Include a process note that any marketing or buyer-facing materials will be prepared with counsel and in coordination with franchisor requirements.
Highlight transfer procedures in the franchise agreement. Point your fiduciaries to the transfer section, approval process, training or qualification needs, and any right of first refusal—without stating or implying future earnings.
Include risk factors and variables. If you must discuss performance context, note factors like seasonality, local competition, supply costs, labor conditions, and management changes—without quantifying future results.
Limit distribution. State who may receive the business binder (e.g., trustee, personal representative, CPA, valuation expert) and require legal review before any materials go to a prospective buyer.

Suggested Structure for Your “Business Binder”

A practical, compliance-aware binder or digital vault can include:

Administrative overview: Entity documents, operating agreement, franchise agreement, key contacts at the franchisor, lender information, insurance policies.
Operations snapshot: Store procedures, vendor list, inventory practices, staffing roles, payroll provider, POS instructions, lease terms and deadlines.
Financials (historical only): Last 3 years of year-end financials, latest tax returns, current A/R and A/P aging reports, and a statement that these are historical records for administration.
Valuation file: Most recent appraisal or valuation report, engagement letter, and the “as of” date.
Compliance tab: A written instruction that no earnings promises are authorized; any buyer-facing materials require legal review and franchisor coordination.
Succession and authority: Powers of attorney, trustee appointment, and internal authorizations for signatories.

Language to Avoid—and What to Use Instead

Avoid: “This location will net $X per month.” Use: “Refer to the attached historical financial statements for past performance over specific periods.”
Avoid: “You can expect year-over-year growth of Y%.” Use: “Future results depend on market conditions, franchisor policies, and management decisions; obtain current data before acting.”
Avoid: “A buyer should pay at least Z times earnings.” Use: “Any sale price will be determined through a current valuation and negotiations, subject to franchise transfer requirements.”

Handling Communications After Incapacity or Death

Provide practical instructions that guide your fiduciary without inviting earnings claims:

Identify who will assemble a current data room (CPA, controller) and the types of documents to include (current financials, lease, franchise agreement, equipment list).
State that any buyer communications must be coordinated with counsel and follow the franchisor's transfer and approval process.
Require that any financial summaries sent outside the fiduciary-advisor team be reviewed for accuracy, date-stamped, and limited to historical facts or valuation opinions.
Authorize the fiduciary to retain professionals to assist with valuation, tax, and compliance.

Coordinating With Valuation, Tax, and Compliance Advisors

Estate planning for a franchise touches multiple disciplines. To protect your family and the business, consider coordinated steps:

Estate planning counsel: Drafts your will, trust, and powers of attorney to address succession, fiduciary authority, and trustee guidance while avoiding problematic financial statements.
CPA and bookkeeper: Maintain clean, timely financials and help prepare historical statements for the binder.
Valuation professional: Provides a dated, independent opinion of value when needed for estate planning, tax filings, insurance, or sale readiness.
Franchise compliance support: Ensures any communications to prospective transferees align with franchisor requirements and applicable laws, and that transfer conditions are followed.
Insurance and risk advisors: Review key-person coverage, business interruption coverage, and beneficiary designations to support continuity.

Aligning these advisors helps keeps your documents consistent, reduces the chance of mixed messages, and gives your fiduciaries a clear playbook.

Practical Next Steps to Update Your Estate Plan

Inventory your franchise documents. Gather your franchise agreement (and amendments), lease, loan documents, and any franchisor policies on transfers.
Assemble historical financials. Collect year-end CPA statements or final internal financials for the last several years, label them clearly, and remove any draft projections from the estate planning file.
Decide on a valuation approach. If you want an estimate for planning, consider commissioning a valuation with a clear “as of” date and purpose.
Revise your will and trust instructions. Add neutral, operations-focused guidance and a statement that your materials are not earnings promises and are not to be shared with potential buyers without legal review.
Update powers of attorney and trustee powers. Ensure your fiduciaries have authority to access books and records, hire professionals, and work with the franchisor on any required approvals.
Create a secure business binder or vault. Organize the administrative, operational, financial, valuation, and compliance tabs described above.
Limit distribution and control versions. Keep the binder secure; use a version log so outdated materials are not circulated.
Plan communications. Specify who speaks to whom and when, especially if incapacity or death triggers the need to stabilize operations or prepare for a transfer.

If you want help building an estate plan that protects your family and documents your franchise without crossing into problematic earnings claims, speak with our firm about representation. Use our contact form or call 414-253-8500 to schedule a consultation and talk through next steps.

Common Questions From Franchise Owners

Can I include historical profit-and-loss statements in my estate plan without making an earnings claim?

Yes, many owners include historical, dated financial statements in a secure business binder for fiduciaries. Keep them clearly labeled as past results for administrative reference. Avoid adding commentary that suggests future performance. Make sure your plan instructs fiduciaries not to share those materials with potential buyers without legal review and franchisor coordination.

If I write a letter to my heirs about expected profits, could that be treated as an earnings claim?

A letter that predicts profits, promises a minimum income, or suggests a specific return can be risky, especially if it later circulates in a sale or transfer context. Use neutral language. Focus on operational facts, identify risks and variables, and direct fiduciaries to obtain current financials and valuations before making decisions. Do not make promises about future results.

How should a trustee share business information with a potential buyer without violating Item 19 rules?

Instruct the trustee to work through counsel and follow the franchisor's transfer process. Materials should generally be limited to factual, dated, historical information and formal valuation reports—not projections. Any summaries should be reviewed for compliance and accuracy, and distributed through a controlled data room. Requirements vary, so legal review before sharing is important.

Is a formal business valuation safer than stating projected earnings in my trust?

In many cases, a dated valuation prepared by a qualified appraiser is a more appropriate way to address value for planning purposes than including earnings projections in estate documents. A valuation is an opinion as of a point in time, not a guarantee of future results. Use it for planning, and keep buyer-facing communications within the franchisor's process and applicable laws.

Do the rules on earnings claims and estate documents vary by state?

Yes. Federal franchise rules apply, and states may have additional franchise, securities, and estate law requirements. Fiduciary duties, disclosure expectations, and transfer procedures can differ. Work with counsel to tailor your documents to the laws that apply in your situation.

If you are preparing or updating your estate plan and want a structure that helps your family while reducing Item 19 risks, we invite you to discuss hiring counsel. Contact us through our contact form or call 414-2538500 to schedule a consultation and see whether our firm can help with your planning and documentation.

Disclaimer: This page provides general educational information and is not legal advice for any specific situation. Laws and requirements vary by state and can change. Reading this page does not create an attorney-client relationship. Consult an attorney about your particular circumstances.

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