Company Life After Death | Tips on estate planning for the business owner
Every adult should have an estate plan in order to provide for family members and arrange for the distribution of property. Business owners have a special type of asset - their businesses. A business presents special issues and problems that should be addressed while the business owner is alive and competent if they want the business to continue after he or she is no longer able to run it.
The estate-planning process for business owners begins with the same process used for non-business owners. An estate planner will review all the facts regarding the person’s assets and family situation, as well as the person’s goals and objectives. However, businesses present special issues. They require continual attention, whether the owner is alive, incompetent or deceased. When business owners fail to plan, their businesses often fail.
One common situation is a family business started by one owner, who builds the business. When the owner dies, the business may be left to the owner’s surviving spouse. If the business is reasonably successful, one or more of the adult children may participate, while other children may choose not to be involved. When the spouse subsequently dies, conflicts often occur if the business is left in equal shares to all of the children. The child who is active in the business and devotes his or her entire working time to it wants to be compensated accordingly. The children who are not active in the business but are co-owners may wish to receive income from it despite their lack of participation. The resulting conflicts create family disharmony and an impediment to the business’s future success.
Another common situation is a business created by two equal partners. When one partner dies, the survivor must often hire someone else to perform the deceased partner’s tasks. This additional operational expense often results in sufficient profit to compensate only the surviving co-owner. The deceased partner’s spouse, however, becomes a co-owner and wants to receive income from it. But the surviving partner (who may have been working harder since the former partner’s death) may not want to share the income with the former partner’s spouse. It’s also likely that the surviving partner did not wish to be in business with the former partner’s spouse. Without proper planning, there’s often no money for the purchase of the spouse’s interest and no obligation for the surviving partner to purchase the spouse’s interest. The resulting conflicts often cause difficulties in the operation of the business.
Business owners can protect the value of a business for the business owner’s family and allow the business to continue to thrive despite a transition in ownership by consulting qualified professionals and creating a succession plan. Advanced planning results in a smooth transition of ownership and control.
Marvin S. Silver, a partner at the law firm of Partridge Snow & Hahn LLP in Westborough, practices in the areas of estate planning and administration, taxation and business law. He is a fellow of ACTEC, The American College of Trust & Estate Counsel. He can be reached at mss@psh.com.
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