Are You and Your Business Prepared?

“Did Matthew have a plan to deal with his business?”

Sheila’s life partner, Matthew, died a week ago. He ran a successful bookkeeping business.

Sheila was in my law office to get advice. Here is what she wished she had known before Matthew had died suddenly.

Matthew did not have a will. He and his business were not prepared to protect his loved ones.

Matthew was a sole proprietorship. Without a will, he had no estate trustee or executor to operate the business. The business lost all value overnight and died with Matthew.

Matthew rented a small office for the business. His landlord wanted to know who would pay the back rent. Otherwise, the landlord wanted to trash everything inside the office. The landlord was only interested in getting a new tenant to pay rent.

Sheila asked me what rights she had. She wanted to remove papers from Matthews’s office. His clients were calling her at home looking for their financial papers.

Matthew had no succession plan for his business. He never considered what would happen once he was not around. He did not even have a power of attorney. Sheila had no signing authority at the bank for the business account. Matthew thought this was best to limit Sheila’s liability.

Business Assets v. Liabilities

What kind of estate plan do business owners need?

That depends on how they operate their business. Businesses can be sole proprietorships, partnerships or corporations.

Look at the problems Matthew left behind.

Matthew was the only owner. He was personally responsible for the business debts. Matthew received all the income which he reported on his personal tax return. Matthew’s Bookkeeping Services was the name of his business.

Matthews’s estate will have to satisfy all his business creditors, including his landlord and clients.

Matthew did not have a will. No one was authorized to collect his business receivables. Matthew’s executor would have been able to act immediately if he had a will.

Was Sheila exposed to any business liabilities?

Sheila needed to get advice. She needed to know if Matthews’s estate was not insolvent. In other words, that his assets did not exceed his liabilities. If there was any concern, Sheila should not take any steps to deal with the estate. Matthew’s creditors could always demand an accounting from her.

Matthew was not up-to-date with his own government filings. He had not filed an HST return for a while. Matthews’s credit card and business expenses were not protected with life insurance. Sheila had difficulty determining what Matthew owed for income tax and other bills.

Without a will, Sheila had no access to the Matthew’s Bookkeeping Services business account. She had a business bank statement with a $40,000 balance. Matthew’s estate could be wiped out by creditor’s claims and liabilities. She could not take any steps to sell the business to Matthews’s employee.

The bottom line was that Matthews’s business became less than worthless. Matthew’s business debts reduced the assets he wanted to leave for Sheila.

Estate Plans for Business Owners

Matthew could have made a business plan to:

1. Incorporate his business to protect his personal estate from business creditors. He could have left more for Sheila.

2. Make a will to authorize Sheila to operate the business until it could be sold.

3. Create a buy/sell agreement. Matthew’s employee could buy the business if something happened to Matthew.

4. Buy life insurance to pay his bills or fund a buy/sell.

The moral of Matthew’s story: The biggest risk is death. Protect loved ones with a business estate plan. Don’t short change your family.

About Ed

Edward Olkovich (BA, LLB, TEP, and C.S.) is an Ontario lawyer, nationally recognized author and estate expert. He is a Toronto based Certified Specialist in Estates and Trusts. Ed’s law firm website is © 2014