A business will is far more than a legal document designed to transfer assets upon the death of an owner or partner. It is a comprehensive estate planning tool that can include everything from management plans, and other documents necessary for a company’s continued operation and future health, to shareholder buy-sell agreements.

An estate planning team consisting of a lawyer, accountant, and qualified financial and insurance professionals can help you develop a business will, including all necessary documentation. There are established methods for transition that can help leave your company and successor management free from unnecessary worry or jeopardy. In addition, through carefully planned life insurance and disability income insurance, the transition can be properly funded to help avoid substantial losses that might otherwise occur.

A business will should be clearly written to address such questions as:

• Does the owner wish the company to be continued, sold, or liquidated?

• If the company is continued, who will have the authority to continue its operation?

• If the company is sold, who are the desired or potential buyers and will they have the funds to complete the purchase in a timely fashion?

Points to Consider

A business will is essential for sole proprietorships and partnerships because they must cease operation upon the death of an owner or partner. If a family member or executor attempts to operate the business without the proper authority that can be granted through a will, he or she may be held personally liable for all debts incurred and any decline in the value of the business. In contrast, the deceased’s heirs are entitled to all profits from the business.

For sole proprietors the business ends and the business assets and liabilities become the assets and liabilities of the estate. If a sole proprietor does not want to change the form of business ownership, but does want to retain the business, the planning concerns involving the administration of the business during the estate settlement period, and the continuation of the business after the estate has been settled, need to be addressed. The proprietor’s will must give the executor certain powers during the period of estate administration such as: 1) the power to retain the business interest indefinitely; 2) the power to do everything possible to operate the business successfully; 3) the power to re-organize the business, incorporate it, or merge it with another business; and 4) the power to borrow money, if necessary, to help the estate meet its need for liquidity.

Some objectives can also be accomplished while the owner is alive—through the purchase of shares by the successor owner or manager, or through the creation of a corporation, which has continuing life as long as a shareholder is competent to vote the stock and make business decisions.

In Transition

To effect a smooth transition, upon the owner’s death, suppliers and customers should be notified through appropriate means that a successor business is in place and will assume the responsibilities and obligations of the prior business.

The surviving spouse should be kept informed of decisions regarding the succession or disposition of the business— for his or her own welfare, as well as to help maintain the stability of the company throughout the transition.

Employees need not be given specific details of the transition or confidential information, but they will appreciate being informed that arrangements have been made to safeguard their welfare.

In Your Best Interest

Planning for the transition of the business you have spent many years building is not an easy task. However, taking steps now to prepare a business will and the accompanying documents can help ensure your business continues according to your wishes.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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