Choosing A Business Entity Type Is An Act Of Estate Planning
Estate planning lawyers always say that estate planning is about planning for life, not just planning for death. If you love your line of work so much that you never want to retire, then spending your days playing golf or walking on the beach probably does not sound appealing enough to motivate you to make plans. The only thing you look forward to is more business projects. The good news is that, if you have gotten far enough with your entrepreneurship dreams that you have applied for and received an employer identification number (EIN), then you have already made an important estate planning decision. Each business structure, also known as a business entity type, has its own set of rules about what happens to the ownership interest of the business owner after he or she dies. Even though you are planning to live a long time after incorporating your business, a Washington DC small business lawyer can show you the ways in which your choice of entity type is helping you create generational wealth.
Business Structures That Go Through Probate
If your business is a one-person operation and you do not plan to hire any employees, then you should choose the sole proprietorship entity type. It is the simplest type of business structure with regard to paperwork and taxation. Sole proprietorships automatically cease to exist upon the death of the owner. Any assets and debts associated with the business become part of the estate during probate. This means that the personal representative of the estate must settle the debts, and when the probate process concludes, the beneficiaries listed in the decedent’s will can inherit the remaining assets.
If the business is an S corporation, it becomes part of the estate, to be inherited when the estate settles. It may be possible to make an S corporation count as a non-probate asset with the help of an estate planning lawyer.
When One Partner in a Jointly Owned Business Dies
The limited liability corporation (LLC) business structure requires an operating agreement upon incorporation, and partnerships, limited partnerships, and limited liability partnerships require a partnership agreement. These agreements contain provisions about how to dissolve the company, how to resolve disputes among its members, and how to remove a member against his or her wishes. The agreement also indicates how one partial owner’s interest passes onto a successor in the event of the partial owner’s death. The provisions of these agreements are unique to each business, and you should consider them carefully before you incorporate an LLC or partnership. A business law attorney can help you work out these provisions of your operating agreement or partnership agreement.
Reach Out to us Today for Help
A business law attorney can help you make decisions about your business entity type and its foundational documents that will also have an impact on your estate plan, creating wealth for you and your heirs. Contact Tobin, O’Connor & Ewing today.