In any comprehensive estate plan, a letter of instruction (LOI) is an important component. An…
What Will Happen to My Business if I Die? Part 1
When someone owns a business and they pass away, the business does not just stop automatically—even if they are the top partner or sole proprietor. There are still employees who need to be paid, products that need to be sold, orders that need to be fulfilled, and vendors and other obligations that must be paid as well.
There is always a lot of turbulence when someone passes away, but if they own a business, it is almost exponentially disruptive and difficult. It is very important for someone who owns a business to think about business succession planning and estate planning for themselves. This is not only for their immediate family, but for their employees and the people they do business with on a regular basis. Otherwise, it can be incredibly time-consuming, expensive, and difficult for actions to be taken properly to continue the business.
Legal Status in Business
For certain types of corporations or LLCs, sole proprietorships or partnerships, the death of the owner may have significant ramifications on the legal status and management of that business entity. For example:
- If you own a partnership that has a default New York State dissolution clause and you pass away, then your partnership is effectively severed. That can have an impact on the business and on your partner—and how they move forward with their livelihood.
- If you own an S-corporation and you do not properly plan your estate, it can lose its status and turn into a C-corporation, which can have significant legal and tax implications.
- If a business owner does not have a plan in place and they die unexpectedly, often the manager of the company will want to step in and take control of things as soon as possible, because of the obligations that need to be met. In an effort to take care of business, oftentimes the manager or other employees will want to access cash from the business bank accounts to continue to run the business, but legally they are not able to do so.
- If someone passes away with 100% ownership in a card store or pizzeria, for example, their family cannot complete basic administrative tasks like sign checks, make deposits, or other basic tasks that are required to continue running the company.
Typically, if the proper planning is not done, the only person who can continue to run the business is the fiduciary of the estate of the owner of the business. In Part 2, we will cover the role of a fiduciary.
Please contact us today with questions or comments.
Eric J. Einhart
Russo Law Group, P.C.
100 Quentin Roosevelt Blvd., Suite 102
Garden City, NY 11530
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