People often look at their estate plan in terms of purely personal assets-their house, bank accounts, etc. But your estate also includes any businesses you own or co-own. So what happens to these assets after you die? The answer to this question largely depends on how you choose to organize your business.
If you run a one-person business out of your house, it is likely a sole proprietorship. This means the business has no legal existence separate and apart from you. If you have a will, this means your sole proprietorship becomes the responsibility of your personal representative (executor), who may keep the business going for up to six months under California law. A probate judge may subsequently order the personal representative to continue the business for a longer period of time or wind it down.
But suppose you operated your business with one or more partners. Like a sole proprietorship, a partnership is an unincorporated business. In a general partnership, each partner is individually responsible for any business liabilities. There are also limited partnerships, where one or more general partners actually run the business, while limited partners function more like investors.
Any partnership should be governed by a written agreement among the partners. This partnership agreement should provide for how to address the death of one or more partners. For example, the agreement might specify the partnership will terminate in the event of a partner’s death, with the remaining partners selling the business and dividing the proceeds between the survivors and the estate. In the absence of a written partnership agreement, a probate court may authorize a personal representative to continue acting in the name of the deceased partner, with all the accompanying “rights, powers, duties, and obligations” under law.
Unlike a partnership or sole proprietorship, a corporation is a distinct legal entity under California law. This is true even if the corporation only has one shareholder. If that sole shareholder dies, her stock in the corporation passes according to the terms of her will. Whoever inherits the shares is then responsible for deciding what to do with the business.
There may be situations where you want someone to have beneficial ownership of a corporation without making them responsible for the actual operations. One way to deal with this is to establish a trust. This allows you to leave the corporation’s stock to a trustee who can then manage the business for the benefit of your chosen beneficiaries.
Do Not Overlook Business Assets
Whatever form of business you own or co-own, it is important to make provisions for the disposition of those assets as part of your estate plan. There are many legal (and tax) issues to consider when dealing with business assets. An experienced California estate planning attorney can advise you on the best way to handle those assets in accordance with your wishes. Contact the Law Office of Scott C. Soady in San Diego today if you would like to speak with an attorney right away.