Wednesday, September 22, 2010
What are an executor's rights and responsibilities when an estate includes a business?
Posted by Lynne Butler
If there is something you want your executor to do with your business, such as sell it to a particular person, hold it until your child reaches a certain age, or simply wait to transfer it until the market improves, you MUST give specific instructions and authority in your Will. Your executor is restricted in what he or she can do without your specific authority.
Did you know that your executor must sell your business as soon as possible after your death? Did you know that he or she does not have the legal authority to run it for you, except while you are trying to sell it? Did you know that if the assets in the business at the time of your death are not sufficient to run it properly, your executor is not allowed to invest any other estate assets in the business? As you can see, the rules are pretty strict about the fact that the executor has to get rid of the business right away, and there is nothing saying that he or she has to hold out for a good price.
This might not be what you want. You can change all of this in your Will by enlarging the executor's powers by addressing these issues. Your estate planning lawyer should ask you whether or not you own a business, and if for some reason he/she doesn't ask, you must bring it up. If you are planning for one of your children to take over one day, or for a management buy-out, for example, you will need to make sure that your Will is ready to finish off the arrangement should you pass away before the arrangements are completed.
There are other restrictions on an executor too, some of which will directly impact a business owner. One that is very important is the rule that an executor can't buy estate property for himself, because an executor is not allowed to benefit from a trust he/she manages (except for the specified wage). Even if someone else buys it and then transfers it to the executor, that still amounts to the executor benefitting. In these cases, if the asset in question is a business or some share of a business, the law can "set aside" the transfer to the executor, or in other words, reverse it.
The executors of many Wills are family members. They just happen to be the same people who are expected to own the business when the current owner passes away. So, how will the transfer of the business take place if the executor isn't allowed to benefit from the estate or even buy the shares of the business from the estate? Again, you can specifically allow the change to the rules by setting out what you want your executor to be able to do.
If you remember that your Will can override general rules by giving specific authorities, you can see how beneficial it would be for a business owner's Will to contain these authorities.