If you are considering estate planning, you may be worried who will inherit your bank accounts, house, and jewelry, Additionally, you might wonder if you should set up a trust to circumvent probate. However, you should also recognize that a significant portion of your estate may be tied up in your business. If you are a sole proprietor, partner, member of a limited liability company (LLC), or a shareholder in a corporation, it is crucial that you consider how you want to transfer your ownership stake when you pass away.
If you fail to account for your business assets, they can be lost in the probate process. Thankfully, through careful estate planning, you can avoid disruption in your business that will continue during probate. A knowledgeable attorney can explain how Moorestown probate affects business succession in your unique situation.
What is a Business Succession Plan?
A business succession plan outlines how people want to disburse their business holdings upon death, but also in life if an unforeseen event occurs. For instance, if business owners become incapacitated and incapable of performing their jobs, a business succession plan gives partners or LLC or board members a clear picture of how to proceed.
Part of a succession plan could include a Buy-Sell Agreement, in which the retirement, death, or incapacitation of one principal triggers a buyout by other members, thus avoiding a potentially murky future during probate.
A revocable trust can distribute all assets, including business holdings. Revocable trusts become irrevocable when the grantor passes away. Assets are then distributed to beneficiaries by during the probate process.
Other Factors to Consider in a Plan
Some proactive steps to consider when contemplating business succession include:
- Sharing objectives with family or those who factor into business succession to ensure they understand and accept their roles
- Discussing all aspects of business succession with an estate planner, including any tax ramifications of selling or gifting a business interest
- Determining if a revocable trust protects specific business interests
- Discussing with business partners the merits of and what should be included in a Buy-Sell Agreement
- Determining a valuation method for the business that considers the company’s growth, so heirs do not argue about its worth in probate
A dedicated Moorestown lawyer can create a business succession plan, including a revocable trust and buy-sell agreement, to ensure a business owner’s holdings end up in the hands the owner intends during probate.
The Impact of Probate on Uncategorized Business Assets
People who overlook business holdings in their wills and do not subscribe to a business succession plan might experience complications once probate begins, since state law will treat business assets and corporate stocks that a decedent did not account for in a will, revocable trust, or Buy-Sell Agreement as assets governed by the state’s intestate rules.
According to New Jersey Revised Statutes § 3B:5-3, when a person dies without a will, the court uses a formula to distribute assets to spouses, children, domestic partners, descendants, and parents.
While distributing stock in a large corporation according to the state’s intestacy laws might not have a dramatic impact, distributing a small business interest will. In this scenario, an unwitting business partner could end up with the other partner’s widow, widower, or children as the new partner, even if this party has no experience, vision, or interest in the business.
For instance, there might be cases where the new partner is going through a divorce when the spouse-owner dies. This could lead to a disgruntled and estranged spouse bringing embitterment to a small company. Without a shared vision for a company, owners might dissolve the corporation or sell it in frustration.
An experienced Moorestown lawyer understands the challenges a business might face during probate if there is no succession plan and could help an owner prepare for the future of their company.
Learn More about How Moorestown Probate Affects Business Succession
It is easy to account for personal assets in a will, trust, or estate plan, but you should also remember that your business will be subject to the probate process. Your corporate stock, LLC membership, or partnership are assets that, if not handled correctly, will end up in probate. These assets will likely get distributed under the state’s intestacy laws if you do not craft a succession plan.
A dedicated attorney from our legal team can explain how Moorestown probate affects business succession and outline what steps you should take to protect the future of your company. Reach out today to learn more.