When someone passes away without a will, everything they own must pass through probate. One of the reasons people draft wills or create trusts is to add a level of control. Without an estate plan, the state’s rules and laws governing intestate succession apply. In other words, the laws of the state determine where your assets go.
This can lead to an entire host of problems. For instance, if you are a business owner and pass away without completing any degree of estate planning, your business will go through probate. Some people may dismiss this because they have a small business. Even small companies have a significant amount of assets, debts, and intellectual property.
While a probate judge has to oversee how your business will pass on to others, who is running the company? Your employees depended on you.
Two Owners
To elaborate on how quickly issues can develop when an estate plan isn’t in place, imagine a scenario where two people own a business together. If one of the owners passes away unexpectedly, the deceased’s shares don’t automatically pass to the other owner.
Many businesses are extensions of people’s knowledge base. In other words, if two women are masters at woodworking and one passes away, it is unlikely that someone with her level of experience and understanding will replace her. Without an estate plan, someone in her immediate family will likely receive her stake in the company. What if that person has no experience with woodworking? The surviving owner now shares a business with someone who is sufficiently short of experience.
A business such as a law firm does not allow any benefactor to take over the company—unless that person has been admitted to the bar in that state.
Buy-Sell Agreements
An estate planning attorney can present a wide range of options for business owners. Though there are many, a buy-sell agreement is one such option. It can solve many of the problems previously discussed.
A properly drafted buy-sell agreement can declare who can buy the deceased’s shares. This can happen upon an untimely passing, a retirement, or if one partner decides to leave the business. It gives the remaining owner a choice of how to proceed.
Jayaraman Law
People create estate plans to plan for the future and to protect those they leave behind. Business owners owe it to their partners and employees to protect the company through a well-craft estate plan. If you have any further questions or are ready to meet with an attorney, contact Jayaraman Law to schedule a free consultation.
Jayaraman Law
