If you own a business, your primary focus is probably building your enterprise and keeping it running. Many business owners are so busy doing that that they forget to think about what would happen to their business if they died. Have you thought about how your business would continue operating if you were to pass away unexpectedly? How would your workers get paid? What about your family, who relies on that income? Who is authorized to make important decisions if you cannot?
In the absence of other arrangements, running a business when the owner-operator has died or is incapacitated would probably require court intervention. For a discussion of managing the affairs of someone who is incapacitated, click here. In the case of a deceased business owner, an attorney might recommend several options:
A family member could apply for letters of temporary administration, seeking court authorization to handle emergency matters on behalf of your estate. These proceedings, which involve filing a sworn application with the court, can result in an administrator being appointed fairly quickly—within a few days of the business-owner’s death if necessary.
However, the powers a court can grant are limited to the most urgent matters that need to be dealt with, and they do not include the authority to make any distributions of the estate to the heirs. The temporary administrator will have to post a bond in order to serve, and there is an opportunity for any interested persons to contest the appointment of the temporary administrator.
Needless to say, temporary administration can be a time-consuming and expensive, if necessary, process that can consume estate resources that many business owners would rather see reinvested in their business or paid out as distributions to their heirs.
Probate of Will and Permanent Administration
A permanent administration, like a temporary one, involves a court appointing a person who acts as the legal authority to handle the affairs of your estate. The process is similar whether or not you have a will.
If you do not have a will, the court must appoint someone as the administrator to handle your estate in order to keep your business running over the longer term. That person will have to hire an attorney to represent them. The court must make findings of fact as to the identity of your heirs before any distributions of funds can be made to your family members, who may rely on your business for their income. An attorney is appointed to make sure no unknown heirs are excluded from the proceedings. The administrator will have to pay a bond in order to receive letters showing their authority to act as your administrator, and there are numerous other reporting requirements to the court. In addition, the administrator must apply for special court permission to sell personal property or real estate. All of these requirements significantly increase the cost to your estate (and your business).
If you have a will, the named executor of the will must still file an application with the local probate court to have your will admitted to probate. This process still involves some court proceedings, but they are much more streamlined. The significant advantages that come with having a will. There will be no need for an appointed attorney to represent unknown heirs or minors because the distributees of your will are named and known, and with any luck you have made provisions for minors who inherit from you to have their property managed for them by someone else until they are of age. An attorney can help you write a will that allows your executor to act independently of court supervision, without posting a bond. Obviously for any business owner, having a written will is an essential minimum step to planning for your family’s well-being in the event of your death.
As you can see, even having a will with a named executor is not necessarily a simple or inexpensive process for your family members to deal with, especially when they are mourning the loss of a loved one. A variety of steps that you can take now could streamline what has to be done, and possibly even eliminate the need for any court involvement. These include:
- Converting your business from a sole proprietorship to an organized entity, such as a corporation or limited liability company
- Developing an emergency succession plan in your business’s organizing documents
- Designating successors on bank accounts and authorizing agents as appropriate
Creating an estate plan that compliments your emergency succession plan
You should consult an experienced attorney as you work through these steps. Viewed in comparison to a court-supervised probate process, a well-drafted plan is a solid investment in your business and your family. Call us today at (512) 201-4083 to schedule an appointment and get started on your own plan.