A family business may rank among a person’s most valuable assets. What happens to the company after the owner dies? Without a clear plan, family members may face disputes over ownership, management and inheritance.
Identify the business ownership
An estate plan should account for the owner’s interest in the company. That interest may involve corporate shares, a limited liability company interest or another form of ownership. The plan should also show how that interest fits with the owner’s other property.
California law recognizes several ways to transfer a business interest after death, including through a will or a living trust. A living trust can transfer the business interest to named beneficiaries without going through California’s probate process. Each method can affect how an owner passes a business interest to heirs.
Decide what should happen to the business
A business owner can state whether the company should remain within the family, pass to certain family members or go to a buyer. The owner can also separate ownership from daily management. For example, one child could receive the business while another receives different assets of similar value.
Key issues include:
- Who will own the business after the owner’s death
- Who will manage daily operations
- Whether several heirs will share ownership
- How the business will be valued for purposes of the estate
- Whether the estate needs cash for debts and expenses
- What happens if an heir does not want to run the business
A precise plan can reduce confusion when family members have different roles or goals.
Coordinate business and estate documents
The estate plan should match the company’s governing documents. An ownership agreement may control transfers, sales or other owners’ rights. Those terms can affect what happens to an owner’s interest after death.
California probate law establishes procedures for handling property after someone dies. If a business interest enters probate, the estate’s representative may need to manage that interest during the proceeding.
Including a family business in an estate plan requires more than designating who will receive the ownership interest. The owner should consider the company’s ownership structure, management needs and governing documents alongside the estate plan. Regularly reviewing an estate plan can help keep it consistent as the business and family change.
