Below is an excerpt from §10.4 of POSTMORTEM ESTATE PLANNING (IICLE®, 2020).
Practical Difficulties for an Operating Business as a Part of Estate Administration
Taking over an operating business is always complicated, but even more so if the chief executive has passed away and cannot offer transition assistance. Complications are also increased if the executor is working with a different lawyer than the one with which the owner worked. Almost everything regarding the entity should be verified promptly by the executor, including:
1. Is the company in good standing with the Secretary of State?
2. Are the corporate records current?
3. Are there any employee issues that require attention?
4. Are there any pending lawsuits against the company?
5. Are there any deadlines that have been missed or are approaching, such as filing the annual report, income, payroll, sales, and excise tax returns and payments?
6. Are facility inspections current, including elevators, sprinkler systems, and alarm systems?
7. Can the executor gain access to financial records and information stored electronically?
The process can be complicated if a transition plan is in place, but much more so if a transition plan was not developed by the owner. The executor must determine who can act as operations manager, which can include evaluating employees. Key employees may wish to leave the company because of insecurities about its future. Key employees may disagree regarding who should be in control. They also may have lost the loyalty they had to the company when the owner was alive. The executor must address these concerns promptly if the business is to continue to operate. Among other things, this may include retention bonuses to the employees, which the executor must justify to the beneficiaries.
Taking control of the business will require significant time, effort, and potential liability. The executor’s fee agreement should set forth the charges for all services and how the charges will be determined in order to avoid spending considerable time on services the beneficiaries do not realize are chargeable to the estate. Many fee agreements that include hourly charges for services related to a business as a percentage of the estate may not correspond to the amount of work involved.
An individual executor often will not enter into a separate fee agreement with the beneficiaries. The executor must keep detailed time records of all time spent on behalf of the estate, including time spent on the business. The attorney should discuss with the executor whether to enter into a fee agreement when a closely held business is an asset of the estate.
For more information about estate planning and probate law, see POSTMORTEM ESTATE PLANNING (IICLE®, 2020). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.