Estate planning can be overwhelming, and it gets even more complex if you own a business that needs to be distributed amongst loved ones and family members. Your estate plan should specifically include what you wish to happen to your business and what provisions should be made for beneficiaries who want to sell their portion of the business. If your business is not included in the estate plan, or your business does not have essential documents such as a buy-sell agreement, it will take substantially longer for beneficiaries to take it over.
Going Through Probate
If your business is not in a living trust, it will go through probate, as do any other assets that are not in a trust. This is very complex and costly due to issues such as valuation and management, and is true even if you include it in a Will; the court must verify the validity of the Will and possibly use the business to offset any debts that must be paid after you pass.
Distribution Amongst Family Members
Assuming that your business is not listed in your Will, it will follow the laws of intestate succession in California. If you are married at the time of your death, your business may be split between your spouse and your children, depending on whether the business is considered joint property or separate property.
This can present a challenge. If all of the beneficiaries want to maintain ownership of their portion of the business, they can try to run it together without putting financial strain on the business. If one or more beneficiaries would rather sell their part of the business and take a cash payout, there will undoubtedly be disputes without a buy-sell agreement due to disagreements on valuation and the purchaser. Furthermore, if a buy-sell agreement is not drawn up properly, it can make it difficult for those who run the business to keep it afloat because of the enormous financial stress on the business or other owners in buying out the departing owner.
The Burden on Your Beneficiaries
This entire process requires a substantial amount of paperwork and will likely cost a substantial sum of money, as your beneficiaries may need legal help to draft the proper documents and ensure that the business is divided up fairly. Without proper advice, the business you worked so hard to build could be left strapped for cash or involved in a long and costly court battle, making it nearly impossible for your family to maintain the growth of the business.
You don’t want to place an even heavier burden on your loved ones, particularly at a time when they’ll be grieving and making final plans. Including specific provisions in your estate plan regarding your business gives your family more time to heal and allows them to spend less time and money on the legal aspects of your death.
Do you have a thorough estate plan that accounts for your business after you pass away? If not, reach out to the Law Offices of Tyler Q. Dahl now to schedule a consultation and get started.
Dahl Law Group
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