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Estate planning for business owners

On Behalf of | Jun 22, 2023 | Estate Planning |

Life and business intersect in Texas all the time, especially for business owners.

It is wise for business owners who are crafting an estate plan to be fully aware of how this is handled by the courts and their personal representative whether it is an executor or an administrator.

Know how a personal representative can run a business

If a business is part of the estate, the court can order the personal representative to continue its operation. They might also be given the power to operate it based on what the court decides is appropriate. Several factors will play a role in this determination.

First, the testator cannot have made a specific provision for the business as part of the will. Second, it will not be necessary to sell the business to cover debts or for any other legal reason. Third, the court decides that the business continuing in operation under the guidance of the personal representative is in the estate’s best interests.

The court must also assess the condition of the business and the estate; the potential need to sell the estate for future claims against the estate; how such an order will impact the speed at which the estate will be settled; and, again, the estate’s best interests.

The personal representative who has been given this authority will be allowed to run the business as they see fit. That includes hiring, firing, paying and making other employee-related decisions; accruing debt for the business including via liens against its assets; buying and selling property as part of the normal operation of the business; agreeing to a lease or contracts that might go beyond the estate being settled; and other powers the court believes are needed.

In short, the personal representative will function as if they are running the business because, for all intents and purposes, they are. This can be a necessary part of the settlement of the estate and business owners and their personal representatives as part of an estate plan should understand the rules.

Estate planning requires guidance

These matters can be complex and it is easy for people to omit critical aspects when they create their estate plan. Simply having an estate plan is a good first step, but making sure it covers every contingency is even more vital.

Often, a business needs to continue operating for the family left behind to make ends meet. There may be employees who rely on the business for their livelihood. Frequently, business owners see it as their legacy and they do not want it to decline and come undone after they are gone.