Up to this point, we have discussed estate planning with respect to legal family. However, all of us have friends that we love as dearly as our blood relations. For some of us, this includes our business partners. Lack of estate planning can severely and negatively impact a business. Take these two examples:
Real Estate Investors
Many real estate investors invest in property deals holding title to the property in the name of single individuals. This could be disastrous for partners not on title to such property. (Ideally such investments should be done inside an LLC. However, many seasoned real estate investors choose to take title in their individual names either to address financing concerns, title insurance, or to merely reduce the amount of paperwork during closing.)
We can illustrate the problem best by using an example. Tyler and Sam buy a piece of land for investment, and they take title to the land in Tyler’s name. A year later, Tyler & Sam find a buyer who wants to purchase the land for them. Unfortunately, Tyler, the titleholder dies before the sale goes through. Now the property is held up on a procedure called probate which could delay the sale for almost a year in some cases. This potential probate problem can be addressed by either titling the property in both Tyler’s name and Sam’s name, as joint tenants, or by taking title in a trust.
When one business partner dies, that deceased partner’s portion of the business transfers to their heirs, usually the spouse. In small businesses, this means that death of one partner means that the surviving partner is now in business with the spouse. Many times, the spouse of the deceased partner can wreak havoc on the business, interfering with its management. One way to address this is through the use of a Buy-Sell Agreement which provides the surviving partner an opportunity to protect the business by buying out the deceased partner’s share. This solution keeps a business intact, while also providing the deceased spouse’s family with the economic benefit of the sale.