Big businesses routinely have succession plans in place. Do smaller family-owned businesses? Infrequently, which is surprising and unfortunate. Without well thought-out succession plans in place, many family-owned businesses cease to exist.
To be sure, many family business owners would love to eventually “pass the torch” to a son or daughter. But what will happen in the event of sudden death or disability before they are ready to accept the responsibility? It is in the best interest of all parties involved that a proper estate plan is in place to avoid probate of business assets. The probate process is expensive, may take upwards of two years, lacks privacy, and takes nearly all control out of your family’s hands. Additionally, a plan could eliminate potentially crippling estate taxes on the business.
A business is a sophisticated property interest. For an owner of a small family business, however, the business is more than just a source of income—it represents the history and livelihood of their clan. With adequate planning, the business and its value may be protected, perhaps by creating a family limited partnership or by placing the family’s assets into a living trust. There can be significant estate tax advantages to creating a limited partnership for your family business and transferring minority interests to future inheritors.
Estate planning is a complex field. Whether you are concerned with devising a plan for either a family estate or that of a business, it is important to get good advice. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters including business succession plans, wills, and living trusts. If you are interested in developing an estate plan or reviewing your current estate plan, contact the experienced estate planning attorneys at Lonich & Patton for further information.
Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may detail general legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.
Beneficiary - Someone who gets something from a trust. A person who gets money from a trust is called an income beneficiary. A person who gets property from a trust is called a remainder beneficiary.
Will – A legal paper that says what a person wants to happen to his or her personal property after s/he dies. The person who controls the Will can change or cancel it at any time before they die.
Probate Estate – All the assets in an estate that are subject to probate. This does not include all property. For example, property in joint tenancy, or an IRA account are not part of the probate estate.
Conservatorship – A court proceeding where a judge picks someone (a conservator) to take care of an adult’s personal needs (Conservatorship of the person) and/or his or her finances (Conservatorship of the estate).
Guardianship – A court proceeding where a judge chooses someone to care for a person under age 18 or to manage his or her property, or both. Guardianship of the person gives someone who is not the child’s parent custody and control of the child. Guardianship of the estate gives someone (parent or not) the right to manage the minor’s property until the child is 18.
Trust – A trust is when one person (trustee) holds title to property for the benefit of another person (the beneficiary). A person called the settlor (or trustor) creates the trust and puts the property in the trust. The settlor, trustee, and beneficiary can be different people. But, one single person could be the settlor, trustee and beneficiary.
Joint Tenancy – When 2 or more people own something and have rights of survivorship. This means that if 1 tenant dies, his or her share goes to the other tenants.
Totten Trust Account – A type of savings or checking account. The money that’s left in the account when the owner dies goes to the person the owner chose. It is not subject to probate. The same as P.O.D. (payable on death) accounts. P.O.D. accounts are more common.
Litigation - A case, or lawsuit. The people in a lawsuit cannot agree, so they present evidence and let the court decide.
Will Contest – When you challenge the validity of a Will in probate court. You can challenge a Will because: it was not executed properly; it was cancelled or revoked; the testator was not capable of writing it.
Executor – The person or company named in a Will to carry out the Will’s instructions. Usually, the probate court supervises the executor.
Letters Testamentary – Court papers that let someone be the personal representative of a probate estate.
Fiduciary – A person who acts for another person’s benefit, like a trustee, guardian, or personal representative. It also means something that is based on a trust or confidence.
Intestate – To die without a valid Will. Or, a person who dies without a Will.
Intestate Succession – State laws that say who gets a person’s property when s/he dies without a Will. Or, what happens if the Will does not say what to do with the property.
With help from the Superior Court of California, County of Santa Clara website.