What happens to my business after I die?
What happens to a business after the owner dies is obviously an important question. The answer will depend on the business’ organizational documents and the business owner’s estate plan. First, it is important to remember that contracts usually trump a person’s last will and testament. Therefore, it a deceased business owner had a partner with whom he maintained a buy/sell agreement, then the buy/sell agreement would most likely control. It is highly recommended for active businesses with multiple owners to either maintain a buy/sell agreement or have a succession plan in regards to management.
Next, one must look to see whether the ownership has been transferred into a revocable living trust (or other type of trust), which happens often. If the owner transferred the business into the trust, then the revocable living trust owns the business and the trustee is responsible for the management of the business (if the business was a sole proprietorship). If the business had multiple partners, then the trustee’s duties will depend on whether the deceased owner was an active owner or passive owner. Eventually, though, the business interest would either be sold or distributed in accordance with the terms of the revocable living trust.
After trusts, survivors must look to the last will and testament of the deceased. Most wills must be probated, which requires the appointment of an executor. The gap between the death of the business owner and the appointment of an executor is an uncertain period. For this reason, emergency orders on the management of the business may be obtained. After the executor is appointed, then the s/he will be responsible for management of the business interest. If the business was a sole proprietorship, management will include the overall oversight of the business. If there was an additional active partner, one would expect the remaining active partner to pick up most of the load.
If a deceased business owner had no buy/sell agreement, no succession plan, no trust, and no last will and testament, then the survivors must look to the laws of descent and distribution in the state in which the deceased business owner resided. This will largely depend upon the marital relationships and children involved. The more complicated the immediate family history, then the more complicated owning and operating the business could become.
Business owners that have yet to determine their business’ future after his/her death should contact an attorney to determine what tools are right for him/her.
Robert Newton is an attorney based in Frisco, Texas, that practices estate planning, real estate law, and business law. This post is meant for informational purposes only and does not constitute legal advice.
