In this article I will share useful information for the corporate and partnership business owner. As I explained in an article about sole proprietors, it’s all about having the right contract in place to protect your corporation from probate. For estate planning purposes, it’s called a Living Trust. Below are some considerations for specific types of contracts.
This type of agreement provides how ownership is transferred if you become unable to run your business for any reason, including your death. It is a legally binding contract, which dictates what happens to your business assets when you die or leave the company.
If you want your heirs to receive money but not control the business, then buy-sell insurance may be the answer. In essence, this works like a life insurance policy, which provides the money for your business partners to buy out your share of the company’s net worth. With this method, the payment to your family does not significantly impact the company’s daily operating cash. Your heirs receive your interest in the business and your surviving business partners can continue to operate the business smoothly.
A well-written plan of what should happen with your business assets upon your death is also very important. A succession plan may be added to your Bylaws if you are a corporation or to your Operating Agreement if you are a partnership. You may also consider a buy-sell agreement with the owners of the company. In the agreement, you can designate a successor to your interest and/or decide if the business is to be sold. You may also include a list of assets and debts to be paid before the net proceeds are distributed.
If you have a Living Trust, be sure to identify assets that are owned by your family. Also, identify your business assets and the contract to protect your corporation from probate. This will save your family a lot of confusion and time when debts need to be paid and assets are distributed.
If you don’t deal with your assets (taking care of things by contract), then the law and the courts provide for you. When we place real and personal property into a trust, we can name who shall receive the property when we die. This contract is called a living trust. If property is not in the trust, it may go through probate. This is where a judge decides who gets your property. Probate requires a long formal court proceeding before your property may be given to your loved ones.
Going through probate is an exhaustive and costly experience for your business partners and your family. To pass your business property smoothly to your family, you will need to put certain procedures in place. If you haven’t set up a Living Trust or if you need assistance with setting up a new business, we can help.
Are you prepared to protect your corporation from probate? Is your partnership protected from probate? If not, we can help.