My firm has an intense passion for assisting people with an entrepreneurial spirit. I sincerely value and applaud the efforts of those who create and grow small businesses of all types. In the case of a loved one who passed away with a business interest, the business interest often passes through the deceased’s estate. But business interests can present real challenges for the surviving family members and confusion about what should be done.
When a family member leaves behind a business interest, the surviving family often faces questions about the estate’s rights in the business. This uncertainty is completely understandable because the law on this point is complex. It is important for the estate representative to navigate these interests carefully. There are many potential financial and legal repercussions for estate representatives who mishandle the inheritance tax or fail to adequately protect the interests of the estate beneficiaries.
Challenges with Business Interests in an Estate
Passing a business interest can be “orderly” or “messy” depending on the quality of the estate plan and business succession plan done prior to passing. A major headache for the surviving family can occur when the deceased left no Will and where the business lacked a clear written plan for how ownership changes upon the death of a member. Generally speaking, when a person passes away with a business interest, the business interest passes through the deceased’s estate. But the rules of the business determine how the surviving business owners will deal with the deceased’s estate. For example, a buy-sell agreement might stipulate how much the surviving business owners must pay the deceased’s estate for the deceased’s share and how the value will be determined. But estate representatives can face major challenges even if proper planning was in place.
One common unanticipated problem we help resolve is where the surviving business members lack the funds to buy out the estate. Negotiation with the business members must be handled carefully to avoid unnecessary disputes or a forced liquidation of the business. Business interests passing through an estate can also create inheritance tax challenges. Because estates have obligations to pay the Pennsylvania inheritance tax, even a prior agreement on how the valuation is made is subject to Department of Revenue approval. The estate representative will be required to support the valuation of the business interest for tax purposes with many documents and supporting exhibits.
It is also important to explore possible exemptions from the tax. Some businesses may qualify as a “Qualified Family-Owned Business Interest“ which may eliminate the inheritance tax. The exemption generally applies if the small business passes from qualified family members to other qualified family members and the business itself meets other requirements.
Resolving Business Interests in the Probate Process
Dealing with business interests in an estate can present many challenges. It is very important for the estate representative to handle the business interests with care. As a probate law firm for estate executors, we help settle estates efficiently and reduce stress. If you know someone faced with a probate process or roadblocks to an estate property sale, please have them contact us for a free evaluation at:
Phone: (215) 918-4242
If you are not quite ready for a consultation, download our probate handbook HERE. We’ll send you helpful probate guides and resources so you know how to handle the estate.