Published on:

Winding Down Your Business Through Estate Planning

A comprehensive estate plan can address the disposal of your personal assets, such as your home or retirement accounts, and any business interests you may hold. Many Americans are self-employed or participate in a business partnership. Winding down these business arrangements is a critical component of the estate planning process.

As with property, you may transfer your ownership of a business to another through a will or trust. In some cases, however, this may not be practicable. If you are a self-employed professional, such as an attorney or physician, and you do not have a surviving partner or successor, it is essential that you leave your executor or trustee with instructions on how to terminate your business-informing clients, disposing of confidential files, et cetera. If you are in a partnership or similar arrangement, such as a multi-member limited liability company, you should also make sure any agreements governing such businesses contain appropriate language dealing with your or a partner’s death.

A Family Legal Dispute

A recent California case involving the disposition of a disputed partnership illustrates what can go wrong in the process of winding down a deceased’s business. This case is discussed for informational purposes only, and should not be considered a complete statement of California law. The case involves the law practice of an attorney who passed away in 2010.

The attorney, Joseph Galligan, previously created a joint living trust with his wife as part of his estate plan. Galligan’s wife died two months prior him, leaving a successor trustee to administer the trust. The trust directed the successor trustee to divide the couple’s assets among six of their eight children. The trust made no provision for the other two children, including Patrick Galligan, also an attorney.

Patrick Galligan claimed he was a 50 percent owner of his late father’s law practice, Galligan & Biscay. Joseph Galligan’s the firm was essentially dormant at the time of his death. According to the trustee, the firm had “little or no economic value.” Nonetheless, Patrick Galligan filed a creditor’s claim against the trust, arguing his 50 percent share was worth upwards of $800,000. The parties to the ensuing litigation ultimately settled in 2011. In exchange for releasing all further legal claims against it, the trust agreed to give Patrick Galligan full ownership of the law practice and $30,000.

Galligan, now acting as owner of the law practice, filed a second lawsuit against two of his siblings in late 2011, alleging they contributed to the destruction of the firm’s business. A California superior court threw out the lawsuit, citing the terms of the 2011 settlement, and awarded the two siblings attorney fees. On August 19 of this year, a California appeals court panel upheld the dismissal but reversed the awarding of attorney fees.

Taking Care of Business

Careful attention to the disposal of business interests during the estate planning process can help head off disputes such as those in the Galligan case. If you operate your own business, or participate in a business partnership, it is critical to make sure all interested parties are on the same page with respect to succession. If you need assistance on this or any other estate planning question, contact the Law Office of Scott C. Soady today.

Contact Information