I heard a tale of woe recently, where a sole-proprietor contractor passed away. Employees working under the license were trying to finish up on outstanding jobs while the family mourned, and a competitor thought it was a perfect opportunity to file a complaint with the State Contractor’s Board because the business no longer had a qualifying party for the license.
I’ll start and end my personal comments on the competitor’s act with one word: karma. But the reality of the situation in this circumstance is that the business was acting outside the scope of law. And, since there was no trust to dictate who gets to act in the decedent’s stead, someone had to make run to probate court for the court to determine who gets the inherited authority to act and get a new qualified party for the business. You can translate that as money, money, money.
Crafting Your Trust
If you’re the license holder and you pass away, someone in your business needs to qualify for the license within thirty days or the license risks suspension. This is true even for corporations, LLCs, and partnerships.
How do you prevent your business or business interest from coming to a screeching halt if you were to die? A trust with a carefully crafted succession plan. You can either place business assets directly into the trust from the get-go, essentially letting your trust hold everything, or you can simply set up a succession plan for what would happen after your passing.
For contractors, the succession plan can include whom you designate to file an application on behalf of the business with the State Contractor’s Board to become the new qualifying party within that thirty-day period.
Prevent Unrecoverable Damages
A trust can also be drafted with a Power of Attorney to designate the party in charge of your business while you are incapacitated (anything from a coma to dementia, et al.). This feature would come in handy when the bank or a vendor insists on talking to the business owner, but the business owner can’t speak.
An incapacitated business owner, with no provision for a person who can legally take the helm during an owner’s absence, is usually a recipe for financial disaster. Everyone would rejoice when the business owner is back to normal. However, contracts would have been lost, opportunities missed, and finances could be in an unrecoverable hole.
All because of the absence of one document.
Lastly, having your business or business interest in the trust protects both your business and your personal assets from the robbing-Peter-to-pay-Paul scenario. In other words, your personal assets can’t be pillaged to pay a business debt. On the other hand, your business assets also can’t be pillaged for a personal debt. The trust holds everything, and it can decide where to take the money from to satisfy any particular debt. This is without bankrupting one or the other in the process.