 In North Carolina, generally, the answer to this question depends on (1) what type of business you own; (2) whether you have bylaws or an operating agreement; (3) whether you have a will; and (4) if you have an insolvent estate.
No matter what type of business, your interest in the business is an asset. Unless there’s a contract stating otherwise, it is an inheritable asset, meaning if you have a will, you can name who the interest passes down to, or if you do not have a will, the interest will pass to your heirs (spouse, children, etc.). If you want to pass your business interest to your son, who will run the family business, instead of it passing naturally to your spouse, you need to have a will drafted. When the individual and the business entity are interwoven, like a sole proprietorship or a partnership, it is important to note that business debts are oftentimes personal and can cause your estate to be insolvent (leaving nothing for your family). This is an important reason to form a business entity separate from the individual. If your business is not healthy, it may cease to operate at your death and wipe out your estate. If you have a contract with other members of the business, you can state what happens to your interest when you pass. This is one of the reasons why we urge people who are going into business with non-relatives to enter into operating agreements – do you really want to be working with your business owner’s spouse after the pass away? More importantly, what happens if the spouse has no interest in running the business? What if she wants to sell or have you buy her out? What if you cannot afford to do so? In addition to recommending our clients enter into operating agreements, we recommend that they incorporate buy/sell language into these agreements. Financial professionals can find inexpensive ways to fund these agreements so that a partner can afford to buy another out. If you own stock in a corporation, that stock will be passed to your beneficiary or heirs just like any other property. While this is not a big deal if you own stock in AT&T, for example, it is a big deal if you own 90% of the shares of a small, family owned business. Again, maybe your business partner does not want to own the corporation with your spouse. If it is your wishes to continue your business when you pass, and your family is onboard, it may be a good idea to put your business interest in the name of a revocable trust. This way, your business interest stays out of your estate when you pass away and the trustee can manage your business interests better than the executor can. Many attorneys will recommend to executors to liquidate business assets because there is too much potential for liability on the executor’s part if he/she attempts to continue to operate the business. We recommend that all individuals get an estate plan in place. However, as you can see, there is more planning to be considered when that individual is a business owner. Feel free to contact Jesson & Rains if you have questions about your business or estate plan.
0 Comments
 Many people have heard of a “living will” (medical document dictating what happens if you are ill and will not recover) and a “living trust” (revocable trust utilized during your lifetime), but most people have never heard of “living probate” because it is a new concept in North Carolina.
Probate is the process whereby your estate is settled after you pass away, and along with that is a determination by the Court that your will is valid (if you have one). With “living probate,” a court will make a determination that your will is valid while you are alive. Thus, “living probate” is a tool for people to use who are worried that someone is going to challenge their will after they die. Common will challenges include lack of capacity or undue influence. For example, a sick elderly woman who has decided to cut out her estranged son from her will may be worried that when she dies, the son is going to challenge the will on the grounds that she lacked capacity due to her age or health. Unfortunately, she cannot testify at that potential hearing because she has passed away, so the parties will rely on the testimony of those who knew her. With “living probate,” she can testify while she is still living. The court is in the best position to assess her capacity at that time. Another example: a man has children who live in another state and a female caretaker in North Carolina. He decides to leave the caretaker $20,000 because of her friendship, although he is still providing for his children in his will. After he dies, his children will find out about this gift in the will and if they are upset, they may claim the caretaker asserted influence over their father. To prevent this potential claim, the man could go through “living probate” and show the court that there is not, in fact, any undue influence. Downsides to “living probate:” 1. There’s the expense of going through this process when it may be unnecessary. The heirs may never challenge the will. The estate still has to be probated upon passing either way. 2. Disinherited heirs will find out that they have been disinherited because they have to be made a party to the proceeding. 3. Along these same lines, the will is public record while you’re still alive instead of only after your death. 4. The North Carolina law does not apply to trusts yet, so theoretically, a trust could still be challenged. 5. Depending on the circumstances, once the will is validated through “living probate,” the court may not allow for revocations or amendments to the will (but this is supposedly rare). 6. Only the testator can start this process – a guardian or agent under a power of attorney cannot seek to have a will validated through “living probate,” even if the testator had capacity at the time signed. Upsides: The testator will know that their wishes will be carried out. They will know without any doubt that their property is being disposed of according to their wishes. They can rest knowing that their loved ones and the executor of their estate will not be left with a dispute when they pass away or the expense of defending a will challenge. If you or a loved one has concerns about future will challenges and would like to discuss this option with an attorney, please give Jesson & Rains a call. |
Subscribe to our newsletter.AuthorKelly Rains Jesson Categories
All
Archives
October 2020
|
RSS Feed
|
SERVICES |
SUPPORT |
©Jesson & Rains, PLLC ALL RIGHTS RESERVED.