Business succession
Your operating agreement outranks your estate plan.
Two documents govern the same shares, written by different lawyers in different years. When they disagree the agreement usually wins, because the other owners are parties to it and your beneficiaries are not.
In short
Where the estate plan meets the operating agreement, and the two have to be made to agree.
A closely held business is usually the largest thing in an estate and the least examined. The trust says who gets the shares. The operating agreement says who is allowed to hold them. A great many agreements do not name a revocable trust among the permitted holders, which means the transfer into the trust may have been void when it was made.
We read the agreement before the plan, every time, because that is the order in which they take effect.
What this covers
Four things we do here
Buy-sell agreements
What happens to a share when an owner dies, leaves or is bought out, decided while everyone is still friendly.
Transfer restrictions and permitted holders
If a trust is not on the list, the transfer into it may never have happened.
Valuation on a triggering event
A number will be chosen. It may as well be one you agreed to in advance.
Passing a business to one child
One child works in it and two do not. Dividing everything in thirds is rarely the answer.
Read about this
Four questions we are asked about business succession
- How do I leave the business to one child and treat the others fairly?By separating the business from the arithmetic. Dividing everything in thirds usually forces a sale nobody wanted.
- How is a business valued when an owner dies?By whatever method the agreement specifies. Where it specifies none, by negotiation between a grieving family and the surviving owners.
- Can I put my LLC interest into my living trust?Read the operating agreement first. If a trust is not on the list of permitted holders, the transfer into it may never have taken effect.
- What happens to my share of the business if I die?Whatever the operating agreement says, and if it says nothing, your co-owners may find themselves in business with your family.
Who does this work
Elsewhere
The other practice areas
- Estate planningThe documents that decide who acts for you and who receives what, written to be used rather than filed.
- Trust administrationWhat happens after. The notices, valuations, transfers and accountings a successor trustee is required to produce.
- ProbateThe court proceeding that moves property when there was no trust, or when the trust did not own it.
- Property transfersDeeds, retitling and the reassessment questions that follow a change in ownership of California real property.
- Incapacity and special needsWho decides when you cannot, and how to provide for someone whose benefits an outright gift would put at risk.