MAY AN ESTATE CONTINUE A BUSINESS OWNED BY A DECEDENT?

The general rule is that an executor (where a person dies with a will) or an administrator (where a person dies without a will) of an estate should proceed to either sell the business in an orderly fashion or liquidate the business (that is, sell its

Albany, NY (prHWY.com) April 19, 2012 - This is a short article on what an administrator or executor of an estate should do where someone dies owning a business in his or her name and not as corporation, limited liability company or partnership.

The general rule is that an executor (where a person dies with a will) or an administrator (where a person dies without a will) of an estate should proceed to either sell the business in an orderly fashion or liquidate the business (that is, sell its assets and collect its cash and receivables). Executors and administrators are not in the business of continuing a business. Instead, executors and administrators are in the business of collecting assets, paying debts and other liabilities, and distributing the remainder.

There are, however, several exceptions to the general rule that an executor or administrator must either sell or liquidate the business:

1. If the decedent dies with a will, and the will expressly directs or authorizes the executor to continue the decedent's business, then the executor may do so. However, even though the executor may authorized to do so, the question will always be whether it is prudent for the executor to do so. Even though the executor is legally empowered to continue the business does not mean that he or she should do so.

2. An executor or administrator may apply for an order of the Surrogate's Court to continue the business. The application would be on notice to all persons interested, chiefly creditors and beneficiaries, who would then have the opportunity to object. The Court will decide the application chiefly based upon the question, is the continuation of the business in the best interests of the estate?

An example of where it would be in the best interests of the estate would be where the business would have significantly more value if it could be sold as an ongoing business; in that case, the Court would likely permit the continuation of the business for a reasonable period of time.

If the Court does grant an order permitting the continuation of a business for a reasonable period of time, and if the Court does not direct that the business be incorporated into a newly created corporation, or be transferred to a newly created limited liability company, the Court in its order will set forth to what extent the general assets of the estate would be liable for liabilities of the business.

3. A third exception would be where there is a will and the will creates a trust and, under the terms of the will, the business may be transferred to the trust and become a trust asset, an executor could simply transfer the business to the trust and let the trustee (who generally would have the power to continue a business) decide what to do with the business. Note that before doing so, the executor would need to first determine that a sale of the business or a liquidation of the business is not necessary for payment of debts, claims, administration expenses and estate taxes,

Finally, where the business is continued by an executor or an administrator, it is important to not use any other estate assets in the operation of the business - all business expenses and obligations should be paid out of the receipts and income of the business and not out of estate assets or estate income.

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Tag Words: revocable trusts, l

Categories: Law

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