Like so many others, I recently binge-watched HBO’s hit TV show ‘Succession’. It got me thinking about estate planning considerations for clients who have business interests. The TV show follows the succession planning process for a huge media conglomerate; but clients who are members or owners of LLCs, sole proprietorships or partnerships also need to consider what is going to happen to their business interests upon their death or incapacity too. It’s very important to coordinate the disposition of any business you may own with your estate plan. Here are some of the considerations estate planning attorneys might think about when clients hold business interests.
Where was the business created, who else is involved and what documents already exist?
It is important to know where the business was created. Corporate law varies from state to state. If your business was created in another state we may need to consult with a lawyer licensed in that state. It’s also important for us to know who else holds an interest in the business currently and their ownership interests. Depending on the type of organization, your ability to assign your interests to others may be limited by documents like partnership agreements, articles of incorporation or other governing documents.
How should you hold your business interests during your lifetime?
If you haven’t done any estate planning in the past, you probably hold your interests in your business personally. You may be able to transfer ownership to your trust, once it is created. However, there may be restrictions on transfers that may need to be accommodated. If there are none, an assignment of your interests may be all that’s needed to transfer them to your trust.
Don’t be surprised if during our appointment we ask if you’re up to date about FinCen’s Corporate Transparency Act reporting. In an effort to curb financial crimes, the CTA included a new federal reporting requirement for beneficial ownership information (BOI). The law requires many companies doing business in the United States to report who owns or controls the company. The deadline for reporting is the end of the year. There are a whole host of rules around reporting and steep financial penalties for non-compliance.
Aside from reminding you to get your report in, we may ask about reporting if we are assigning your ownership interests to your trust. Reassigning your interests may change who the beneficial owners are for purposes of reporting. We recommend that if you have any questions about reporting that you talk to your corporate attorney.
What should happen to your business if you become incapacitated?
Many clients think long and hard about what should happen to their business interests after they die. They often spend less time thinking about what would happen to their business if they become incapacitated during their lifetime.
If you assign your business interests to your trust, this may give the trustees the specific power to continue the business or other enterprise and take actions like merging, dissolving, changing the form of business organization or contributing additional capital. You should consider if your trustee or successor trustees are the right people to have these powers. Your financial power of attorney may also include some provisions related to managing your business organizations; however, assets held by an organization like an LLC are not ordinarily considered “personal assets” managed by an agent under a general power of attorney.
How does your business interest transfer on your death?
If your business interests are held by your trust upon your death, either because you have assigned them to the trust or because they are set up to transfer on death to the trust, they will be distributed according to the dispositive provisions of the trust. This assumes that the dispositive provisions are consistent with any limitations or restrictions placed on the transfer of business interests within the governing documents. Within the dispositive provisions, you can leave your business interests to an individual, to a group of people, to another trust, or leave specific instructions about how the business interests should be handled.
Regardless of what the plan for your business is, it is important to bake it into your estate plan. It is also a good opportunity to revisit your businesses governing documents and to reconsider your plan in light of any restrictions. There’s no reason not to consult with an estate planning attorney!
