Will or Trust for Sole Proprietorship

[KMG20]

Jurisdiction

South Carolina

My husband and I operate a small business that is set up as a sole proprietorship under my name. We are updating our wills and thought I could just leave everything to him so he could continue working the business. We were told that might not work, that it could be tied up in probate a year with the business closed down, that putting the business in a trust instead now would allow him to continue operating as usual if anything happened to me.

Our goal is to sell the business and retire in 7-10 years.

Is there a way to set up my will to transfer the business to my husband? We file joint tax returns but the business is reported on a Schedule C under my name and I use an EIN and a DBA.

 

[adjusterjack]

Consider setting it up as a partnership with your partnership agreement leaving the business to the surviving spouse automatically upon death. You'll have to transfer ownership of assets to the partnership and it might be a little more work with taxes. Another alternative is an LLC with the operating agreement also set up so that the LLC goes to the surviving member automatically.

Consult an attorney and a tax pro.

 

[zddoodah]

My husband and I operate a small business that is set up as a sole proprietorship under my name. We are updating our wills and thought I could just leave everything to him so he could continue working the business. We were told that might not work, that it could be tied up in probate a year with the business closed down, that putting the business in a trust instead now would allow him to continue operating as usual if anything happened to me.

Who told you this?

In the abstract, there's no reason to think that anything might be "tied up in probate" or that the business would have to close down. In fact, absent some unusual facts, the notion of the business shutting down is pretty absurd.

Also, in the abstract, the idea of "putting [a sole proprietorship] in a trust" is a pretty meaningless concept since a sole proprietorship is not a legal entity or an asset.

Is there a way to set up my will to transfer the business to my husband?

Undoubtedly, yes.

By the way, given that your "husband and [you] operate [the] business," why is it "set up as a sole proprietorship under [your] name? Why not convert it to a partnership or some other business entity form that would assuredly be unaffected by either of your deaths?

Obviously, these are things you ought to discuss with an estate planning attorney -- and preferably one with some business acumen.

 

[KMG20]

It was an attorney who told me this today. I was there for another matter and asked if he did wills on the way out, then we got into this discussion.

I have had this business for decades, my husband started helping out a few years ago. We kept it as an SP to keep it simple. I do all our own taxes and went through an in-house audit recently and the IRS auditor was fine with how things were set up. I'd rather keep things simple, but I'll do what's best.

 

[Tax Counsel]

It was an attorney who told me this today. I was there for another matter and asked if he did wills on the way out, then we got into this discussion.

Is this attorney a probate attorney? Absent something unusual there is no reason to think the business would have to be shut down during probate administration. Estates continue running businesses during the probate process all the time. Probate may delay your husband getting formal ownership of the business assets, but that should not disrupt the business if he wishes to continue it.

That said, there are other ways to set this up that avoids the business going through probate at all, and that may have some advantages to you and your husband, so consulting with a probate lawyer is a good idea.

I have had this business for decades, my husband started helping out a few years ago. We kept it as an SP to keep it simple. I do all our own taxes and went through an in-house audit recently and the IRS auditor was fine with how things were set up. I'd rather keep things simple, but I'll do what's best.

You can keep it as a sole proprietorship (for tax purposes at the very least) and still arrange for the business to pass to your husband outside probate.

 

[zddoodah]

Is this attorney a probate attorney? Absent something unusual there is no reason to think the business would have to be shut down during probate administration.

Concur. Is there something particularly unusual about your business that might necessitate a shut down? As noted, absent some unusual facts, it makes no sense.

 

[KMG20]

Concur. Is there something particularly unusual about your business that might necessitate a shut down? As noted, absent some unusual facts, it makes no sense.

I don't think my business is unusual. Small store plus online.

His specialty is family law, real estate transactions, wills, POA's, Probate and constructing Trusts.

I just googled his firm and realized that his partner was recently accused of running long term complicated scams, still under investigation. I had read about this earlier. I'll be doing more research about other ways to handle this. And find a different attorney. Any more direction would be helpful, I really want to keep it a sole prop if possible.

Thanks for all the replies.

 

[John Hazelwood]

It was an attorney who told me this today. I was there for another matter and asked if he did wills on the way out, then we got into this discussion.

 

[PayrollHRGuy]

It was an attorney who told me this today. I was there for another matter and asked if he did wills on the way out, then we got into this discussion.

Told you what John? Did you necropost to the wrong thread?

 

[PayrollHRGuy]

It seems that John is also using someone else's photo.

Brian J. Kendrick | BiggerPockets

 

[justblue]

It seems that John is also using someone else's photo.

Brian J. Kendrick | BiggerPockets

Wonder what Brian would think of this if I were to notify him...hummm...