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In our last article, we discussed the ramifications of not having a succession plan in place for a business. In this article, we will discuss the role of a fiduciary of an estate, and how an individual in that role can ensure the business continues to operate if the owner passes away.
In order to continue running the business of a deceased person, someone must be appointed as the fiduciary. This is all dependent on whether there is an estate plan in place, namely if the owner has a Last Will and Testament that must be probated with the local Surrogate’s Court.
If the Business Owner Has a Will
If there is a Last Will and Testament, and there is concern about a contest or the timeframe it would take to get a will probated completely, one can apply for what is known as Preliminary Letters Testamentary to have a Preliminary Executor appointed:
- A Preliminary Executor can take the reins of the business and maintain the status quo to avoid any damages or loss to the estate, until the court admits the Will to probate and appoints an Executor.
- The Preliminary Executor cannot distribute the shares of the stock to the beneficiaries of the Will or any other estate assets, but they can marshal and protect the assets.
If the Business Owner Does Not Have a Will
If there is no will and the laws of intestacy are in place, someone permitted under the law (usually next of kin) can apply for Letters of Administration or Letters of Temporary Administration to appoint an Administrator or Temporary Administrator. The Temporary Administrator is akin to a Preliminary Executor in that the Temporary Administrator can take control of the decedent’s assets, marshal and protect them, and help the business to continue until a formal Administrator is appointed by the Surrogate’s Court.
When the Administrator or Executor has been appointed, he/she will distribute the shares of the stock to either the beneficiaries or the distributees. The shareholder(s) will effectively become the owner(s) of the company and can act on its behalf to elect a board of directors, appoint officers, etc.
The important take away is that if you have a loved one—or an owner of the business where you work—who passes away, you cannot continue to operate their company as if they are still alive. A fiduciary must be appointed to continue to run the business and to distribute the stock or ownership of the business to the successor.
Regardless of the path, being appointed fiduciary isn’t a quick or easy thing to do. It is critical to meet with an experienced attorney as soon as possible to help you navigate this process.
Please contact us with questions or comments.
Eric J. Einhart
Russo Law Group, P.C.
100 Quentin Roosevelt Blvd., Suite 102
Garden City, NY 11530