Talk to a Business Attorney Before Making that Estate Plan

Creating a will, trust or other documents to make up an estate plan is always a good idea. But one mistake that many business owners make when creating an estate plan is making the estate plan without consulting their business attorney. If you do own a business, both your estate attorney and your business attorney need to be involved.

Conflicts Between Documents

Too often, people draft or alter estate plans that pass on or devise business interests without thinking about whether those documents conflict with existing corporate documents.

In your estate plan you have practically free and unfettered freedom to leave what you want to whom. But that doesn’t mean that your corporate documents give you that same freedom. The things that you want to happen to your business when you are gone can often conflict with existing corporate documents.

For example, you may want to leave your interest in your business to loved ones in your estate plan. But what if your corporate documents don’t allow this—that is, what if there are restrictions in the corporate bylaws or shareholders agreements or in a partnership agreement that say that nobody other than you can own your interest in the business?

Corporate Documents Usually Win

As a general rule, when there is a conflict between corporate documents and an estate plan, many courts have held that the corporate documents take precedence. That means that if you want to make sure your estate plan does what you want it to do, you’ll have to see a corporate attorney to help with modifying your corporate documents.

This does happen, because, especially in smaller, or closely held companies or partnerships, the people in the business want to work with you—not your relatives, whom they may be consider to be at best strangers, and at worst, unqualified to run or manage a business that they all have a financial stake in.

Buy Back Provisions

Many businesses solve this problem, by giving other owners or shareholders or partners the ability to “buy out” those who inherit interests in a business.

That means that your beneficiaries may get paid for their interest in your business that they have inherited—but they may not have a right to be a continuing member, or to manage the business, or to participate in it the way you did.

You can, of course, fix this, but that involves altering your corporate documents, and often, that isn’t a unilateral decision—it likely takes votes by boards of shareholders or other members of the company.

Contracts

Your business probably has many contracts with multiple vendors or contractors or consumers. Are those assignable, to whomever you are leaving your business? If they aren’t, there could be problems.

And before you leave your interest in your business to anyone, you should make sure you have a legally formed entity. Informal, unregistered sole proprietorships, cannot pass in an estate plan.

Create corporate documents that create a lasting legacy for you. Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 today.

Sources:

360financial.net/post/estate-planning-for-business-owners#:~:text=What%20essential%20estate%20planning%20documents,any%20specific%20business%20succession%20plans.

legacyassuranceplan.com/articles/why-plan/understanding-risks-of-inheriting-business-assets