The probate process can be especially complicated and expensive for a business. It can be quite a process to petition the court for an expedited appointment of an executor, administrator (or other fiduciary) to shepherd the business through the probate process as its fiduciary. During the time that the petition is pending, business decisions have to be made and payroll, tax obligations and key business decisions are ongoing.
Fortunately, there are a variety of methods of providing a smooth non-probate succession for small business owners. If there are multiple owners, then there should be buy-sell agreement provisions in the governing documents: LLC Operating Agreement; Shareholder Agreement; Partnership Agreement. The acquisition of shares of corporate stock or LLC interests can be funded with life insurance, if necessary. The agreement can spell out whether the seller will provide internal financing and the terms of any post death sale.
As far as avoiding probate, a member of an LLC or a stockholder in a corporation can take advantage of the Uniform Transfer on Death Act. RSA 563-C. Language can be inserted in the governing documents that states, “UPON MY DEATH, MY INTEREST SHALL BE TRANSFERRED TO MY DAUGHTER JANE”.
The interest in the LLC or stock can be owned directly by the Trustee of a trust – revocable or irrevocable. In the case of a manager-managed LLC, the LLC interest can be held by a trustee while the individual can be the manager.
Every business (small or large) should have a business succession plan supported by a properly drafted buy-sell agreement which can act like a will, of sorts, for your business. A good business succession plan will utilize estate planning and business planning strategies such as trusts, business buy-sell agreements and other legal documents to increase the chances for the survival of your business when you retire, become disabled or die unexpectedly.
Some of the important questions that are addressed in a comprehensive business succession plan are:
Business owners should have an overall estate plan in place with carefully designed estate planning documents that work together to create a business succession plan that works.
This blog is intended for informational use only. The information contained herein should not be construed as offering legal advice or a legal opinion. At Welts, White & Fontaine, P.C. our lawyers have experience with representing closely held businesses in the estate planning, probate, and buy/sell agreement process. Please contact us if you have questions or concerns about your business.