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By: Scott Grossman on September 12th, 2016

Potential Hazards for Estates With Business Interests

After your loved one passes away, you may be in charge of handling all of his or her affairs. In some cases, these affairs include an interest in a small business. Estates that inherit business interests often face many obstacles. Without a proper business succession plan in place issues may arise.

Possible Issues Relating to Estates With Business Interests

In the process of administering the estate, you could face the following issues:

  1. Upon passing an owner’s business may be forced to shut down. This is often the case with sole proprietorships where the only owner has no plan in place for succession of the business. An unexpected shut down of a business can leave the estate administrator with a lot of messy details to clean up, such as organizing the business’s affairs and dealing with potentially unhappy former customers and vendors.
  2. If there were multiple owners of the business, the surviving owners may need to purchase the estate’s share in the business, depending on the terms of the business’s operating agreements, by-laws, shareholder agreements, or other documents. Unfortunately, this can create issues if the business or the other owners do not have easily accessible funds in order to buy out the estate.
  3. If there were multiple owners of the business, an heir or beneficiary may find themselves suddenly in business with the other owners. While the original owners of the business may have had a longstanding and solid relationship. Issues may arise when new owners are involved. Especially where the estate’s administrator, the heir, or the beneficiary know very little about the business and the applicable industry.
  4. The person in charge of administering the estate must place a value on the business interest. The latter is done for the purpose of probating the estate and reporting its value to the IRS. This is not always easily accomplished and typically involves a formal appraisal. These appraisals may be expensive and time consuming.

Follow up

Are you in charge of administering an estate that has a business interest? Is so, we highly recommend seeking assistance from an experienced legal professional who can help the process run more smoothly.

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