Business Estate Planning

As Business Owners there is an additional level of estate planning for the business. It’s an extra responsibility for those who have a business that is actually making money and supporting others in addition to the business owner. The strategic business plan must be dynamic as circumstances and situations change. That plan should incorporate what happens upon death or disability.



The planning is greatly impacted by the structure of the business. If the business is a sole proprietorship and the owner is the only person working for or on the business the planning is not so complicated. Upon death if no other planning has taken place, the assets are frozen and the business dies with the owner. The business assets go through the probate process. The person who is the Administrator or the Personal Representative takes the steps to determine the assets of the business and creating the most profitable scenario on behalf of the beneficiaries. The Personal Representative must also determine if there are outstanding contracts that were to be performed on behalf of the company and work to mitigate any damage that may result in nonperformance. The Personal Representative needs to determine if there is any type of insurance in place that will help mitigate the damage if there is a suit based upon the nonperformance?

If the business entity is a Limited Liability Company or a Corporation the documents that determine what happens during death and disability are the Operating Agreement and Shareholders Agreement respectively. Unfortunately many people use “Do It Yourself” agreements that neglect to answer the important questions such as how to plan for the next stage of life or disability questions. In this circumstance the District, state or commonwealth has a standard action plan much like the will they have created for those of us without our own. With this oversight there is a need to probate the business which creates an additional layer of responsibility during the grieving and potentially financially challenging period.

The Success plan needs to identify what is the most effective way to transfer control or wind down the business. If the law of intestacy is applied because there is no will there are possible outcomes that may require the liquidation of the business and the assets. If you have multiple beneficiaries who want their piece of the business it may result in a fire sale due to the immediacy required to provide the beneficiary his or her fair share.

Many businesses have intellectual property as an asset. Intellectual property has its value in being unique. If there are multiple beneficiaries and each one has ownership in the intellectual property due to poor planning or no planning and the law of intestacy has the ownership shared the value has just been lost.

In addition, the business may have tax consequences that are not planned for. In businesses such as farming when the business may be land rich but cash poor the lack of planning where taxes are required at 9 months after the death of the business owner could result in the sale of the land. This is typically an undesirable outcome. The tax planner can often ask for a deferral and up to 10 year payment plan in certain circumstances. However, as always a strategic plan is required.

As entrepreneurs we put blood, sweat and tears into building a business. Lack of planning can erase all that we have done.