Estate planning for business owners goes beyond deciding who gets your personal assets after you pass away. Your business likely represents years of hard work, much of your family’s wealth, and income for employees and loved ones. If your estate plan does not cover what happens to the business if you become unable to run it or after your death, your family and company could face uncertainty at a difficult time.
Ownership may become part of your estate, business partners might have to work with heirs, and family members could inherit a business they are not ready to manage. We believe business owners should approach succession planning and personal estate planning as one combined financial and legal strategy.
At Bernard Law P.C., we help business owners in Shoreham, Long Island, and across Suffolk County
coordinate their business interests with wills, trusts, tax planning, and succession plans. Our goal is more than just transferring ownership. A good plan should cover who will run the company, who will benefit financially, how taxes and other expenses will be handled, and what happens if the owner cannot work before passing away.
Your Will Alone May Not Be Enough To Transfer A Business Successfully
A will can say who inherits a business, but it does not always decide who will run the company. Ownership, management, and financial rights are not always the same. For example, a child might inherit the value of a business but may not have the skills or interest to manage it. Similarly, a business partner might be able to run the company but may not want to work with the owner’s family.
The company’s governing documents therefore deserve the same attention as the owner’s personal estate planning documents. For a New York limited liability company, the operating agreement can have significant consequences when an ownership interest is transferred. Under New York Limited Liability Company Law § 603, an assignment of a membership interest generally transfers the economic rights associated with that interest, subject to the operating agreement. New York Limited Liability Company Law § 604 further provides that, unless the operating agreement provides otherwise, an assignee does not automatically become a member with full membership rights without the required consent of the other members.
That distinction can dramatically affect a family after an owner’s death. An estate plan that says “I leave my business to my children” may therefore be only part of the solution. We want the will or trust, operating agreement, shareholder arrangement, and succession plan to work together rather than create conflicting expectations.
Decide Who Should Own The Company And Who Should Control It
Business succession planning requires us to separate two questions often treated as one: Who should benefit financially from the business, and who should have authority to run it?
Consider a business owner with three children when only one works in the company. Dividing ownership equally may seem fair, but it can create a difficult structure in which one child does the work while siblings not involved in daily operations retain ownership rights. In other situations, the better solution may involve transferring the company to the participating child while balancing the other children’s inheritances with different assets.
For corporations with multiple shareholders, agreements among shareholders may also affect voting and control. New York Business Corporation Law § 620 permits written shareholder agreements concerning the exercise of voting rights and recognizes certain arrangements affecting corporate governance. These agreements, along with buy-sell provisions and other governing documents, can become critical parts of a succession plan.
We believe these decisions should be addressed while the business owner can participate fully in them. Waiting until illness, incapacity, or death leaves family members and business partners to solve problems that could have been addressed beforehand.
Plan For Incapacity As Carefully As You Plan For Death
A business owner does not have to die for succession problems to arise. A stroke, serious accident, cognitive decline, or other medical condition can suddenly leave an owner unable to sign contracts, access accounts, supervise employees, or make major business decisions.
That is why incapacity planning should be integrated with business succession planning. Powers of attorney, trusts, operating agreements, corporate documents, and internal management arrangements should be reviewed together. The person who can manage someone’s personal financial affairs is not automatically the person who should operate the company.
After an owner’s death, the executor’s authority also matters. New York Estates, Powers and Trusts Law § 11-1.1 provides fiduciaries with extensive statutory powers concerning estate property, subject to limitations contained in the governing instrument or court order. However, under EPTL § 11-1.3, a person merely named as executor generally cannot dispose of estate property before receiving letters testamentary or preliminary letters, other than taking limited steps permitted by law to preserve the estate.
For a company that requires daily decisions, even a relatively short period of uncertainty can matter. Proper planning should therefore identify how management continues while estate administration is being addressed.
Business Value Can Create Estate Tax And Liquidity Problems
A successful company can make an owner wealthy on paper without necessarily leaving the estate with sufficient cash to address taxes, expenses, debts, and distributions to beneficiaries. This is particularly important for closely held businesses because there may not be a ready market for the ownership interest.
New York imposes an estate tax under New York Tax Law § 952 on the transfer of a New York estate when the statutory requirements are met. New York Tax Law § 954 generally begins the calculation of a resident’s New York gross estate with the federal gross estate, subject to New York modifications. A valuable closely held business may therefore become an important part of the estate-tax analysis.
We encourage business owners to address valuation and liquidity before they become estate administration problems. Life insurance, trusts, buy-sell arrangements, lifetime transfers, and other strategies may be considered depending upon the owner’s objectives and financial circumstances. The appropriate plan should be based on the actual company, family structure, tax exposure, and long-term objectives rather than a standard formula.
New York Business Owners With Florida Connections Need Coordinated Planning
Business owners who divide their time between New York and Florida have another issue to consider: domicile. Florida currently does not impose a state-level estate tax on estates of individuals dying after December 31, 2004, while New York maintains an estate tax system. Simply owning a Florida home, obtaining a Florida driver’s license, or spending winters there does not by itself resolve every domicile question.
Business ownership can be particularly important because a New York company may represent a continuing financial and personal connection to the state. Owners who intend to establish Florida domicile should therefore coordinate their business succession planning with their broader residence and estate-tax planning.
There may also be Florida business interests that operate under different governing statutes. If you own companies, real property, or substantial financial interests in both states, we believe the estate plan should be examined as a coordinated whole. Otherwise, documents created independently in different states may not accomplish the owner’s intended result efficiently.
Call Our Shoreham Estate Planning Attorney For Business Owners For A Free Consultation
Your business may be one of the most valuable assets you ever create, but protecting its value requires more than simply mentioning the company in a will. At Bernard Law P.C., we help business owners coordinate estate planning, trusts, estate-tax planning, and business succession strategies so their personal and business plans work together. We focus on creating individualized plans based upon each client’s company, family circumstances, financial position, and long-term objectives.
Our law office is located in Shoreham, New York, and we serve business owners, individuals, and families throughout Suffolk County. We also assist clients with New York and Florida estate planning concerns, including snowbirds and business owners whose assets or interests extend into both states.
Call our Suffolk County estate planning attorney at Bernard Law P.C. at (631) 378-2500 to schedule a free consultation. We serve clients throughout Suffolk County and can help you create an estate and succession plan designed around the business and family you have worked hard to protect.
