What happens to a business partnership when a partner becomes disabled or dies?
Most of the people seeking legal counsel from a skilled Park Ridge estate planning attorney are “regular” folks--singles or couples who earn their income working for others. In such cases, an estate planning attorney has a generally-stable benchmark income figure to use when considering which common estate planning strategies like Medicaid planning, tax-related issues, and more to incorporate into the individualized estate plan.
But what happens if the person is involved in a business partnership?
The existence of the business partnership brings additional considerations to a comprehensive estate plan which extend beyond the income potential of the business and its partners. Estate planning attorneys will look to the written partnership agreement among the partners and the financial and other obligations it places on the partners in the event a partner should become incapacitated or die. Hopefully, such an agreement exists and was well-written. If not, revisions may be necessary.
In general, people protect themselves and plan for incapacity through the use of powers of attorney. A
power of attorney is a legal document enabling the maker to designate a trusted person or persons to make financial and/or medical decisions on their behalf in the event they become incapacitated and unable to make those decisions on their own. While this makes people uncomfortable to consider, incapacity can and often does happen. It may hit suddenly or gradually through an accident, illness, injury, or even conditions such as dementia and Alzheimer’s disease.
While the incapacity or death of a loved one is devastating to their family members, the death or incapacity of a business partner can seriously and negatively impact the business’ bottom line or even its ability to continue.
Partnership agreements, when well-drafted, will anticipate these events and have provisions – – ideally woven into each partner’s estate plan-- to address each possibility. Common issues include whether the disabled or deceased partner’s partnership interests pass to their heirs or gets bought out by the surviving partners. If
a death or disability occurs, it triggers a valuation of the business and partnership interest. It’s important that the buyout terms are affordable for the surviving business partners. Sometimes life insurance policies are taken out to cover a potential future buyout.
If you are in need of an initial estate plan or would like to modify an existing one, the Law Office of Thomas J. Hansen can help you. Contact us today to schedule a consultation.
From our office in Park Ridge, we’ve been serving clients throughout Illinois for over 20 years in all aspects of estate planning, tax preparation, and real estate transactions.