The Legal Play Blog

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When a business owner suddenly passes away, it raises the following questions about the company’s future:

• Will the business continue to exist, and in what form?
• Who will oversee the business’s affairs and decision making?
• How will clients and employees be retained?
• How can the business be guided through management and ownership uncertainty?

If a business owner dies with a will and succession plan, preserving the business may be as simple as pivoting to the next in line, whether that’s a vice president, a partner, or a family member who has an interest in the organization.

This guide is for those instances when a business owner dies without a clear transition plan in place. If this is the case, you’ll need to act fast to ensure the business can be preserved.

When a Business Owner Dies It Is Important to Act Quickly

Whether the business will be captained by someone else or liquidated, it’s important for everyone involved to move quickly. Why? There are a few reasons, including:

• Client and customer retention – When a business owner dies, the resulting uncertainty may compel clients to terminate their relationship with the company and seek services through a competitor. By sorting through the company’s affairs quickly, you will maintain confidence among existing clients.
• Employee retention – A business owner’s death can create a great deal of uncertainty among employees. If the company’s operations are sidetracked, it will also sidetrack payroll and benefits. The longer this goes on, the harder it will be to retain essential people. By implementing employee retention measures right away, you can prevent extended downtime due to labor shortfalls.
• Equipment and facility upkeep – Retaining customers and employees are the pressing matters, but some businesses also rely on equipment, which may deteriorate without constant upkeep. When a business owner dies, these assets will decline in value and condition if new ownership doesn’t act promptly.

If the business and its assets are to be sold off, any heirs and partners will want to maximize the company’s value. If the business is to be preserved and operated by a new person, retaining as much of its value as possible is also the priority. In both cases, you’ll need to move quickly to keep the company intact.

First, Determine the Nature of the Business and Who Has an Interest in It

Whether the plan is to liquidate the business or continue operating it, the first thing to do is to determine what kind of entity the business is, and who has an interest in it.

Regarding the first point, business entities may be classified as a sole proprietorship, a partnership, or a corporation. If the business was a sole proprietorship, there may be no succession plan, or anyone empowered to step into the decedent’s role.

If the business was a partnership or a corporation, you have some options. For instance, if the business was a general partnership, then another partner may be able to assume management duties and ensure there is no interruption in production or operation. If the entity was a corporation, shareholders may be able to quickly appoint a new head if the bylaws allow for it.

Once the entity’s classification is clear, you’ll need to speak to family members and employees to determine who has an interest in the business. It’s important to establish early on who is interested in running the business and who wants to liquidate its assets. If there are disagreements, it’s highly recommended that any heirs or beneficiaries bring in an attorney to mediate the process.

If No One Is In Charge of the Business, an Administrator Will Be Needed Quickly

If the business was a sole proprietorship or if there is no other acting head of the organization, an administrator must be designated right away. In some organizations, the bylaws may allow shareholders to immediately appoint a new person to take charge – a vice president, for example – but if no immediate appointment is possible, no one may have decision-making power over the company. This may lead to a long decision-making lull between the owner’s death and a new management team.

The goal is to get a business administrator appointed as soon as possible. This is done by opening a probate case for the decedent’s estate and business. As part of the case, the probate court will designate an administrator (if one hasn’t been named in a will). Once an administrator is in place, they can move quickly to retain employees, smooth over client relationships, and make essential operational decisions.

A Few Steps to Take Once the Business Can Be Managed

Once the probate case is open, and an administrator is in place, operations can be brought back online or asset liquidation can begin. From here, there are a few important steps to take, including:

• Implementing employee retention measures – If the mission is to retain the business or sell it to another person who wishes to operate it, you’ll need to retain critical employees. This means incentivizing employees either through promotions or bonuses. Both can be used to keep important workers on staff.
• Prioritizing the things that drive the business – By the time an administrator has control of the business, there will likely be multiple areas of the company that need to be addressed. However, you will need to be time-efficient by first addressing the departments most responsible for profitability. This could be your operational department, your salespeople, your marketing department, your accounting team – and you will need to identify which of these departments are vital for the short term and ensure they are working as needed.
• Determining what court orders are needed to either manage or liquidate the business – Whether the plan is to sell or operate the business, any administrator will need permission from the court to execute certain decisions. If there is a dependent administrator in place, they will need court orders for just about every transaction. To ensure none of these important matters are held up in court, anticipate the court orders you will need and get them handled before they cause roadblocks.

After a Business Owner Dies, a Trusted Attorney Can Help Preserve the Organization

Businesses are difficult enough to run when the managing principal is alive, and when they pass away, the situation can quickly grow in complexity.

If you have an interest in a business where the owner has recently died, an estate planning or business attorney can provide valuable, timely guidance on how to protect the company. They can also provide insight on what to do if you plan on running the business, plan on selling it to another would-be owner, or if you are expecting to liquidate. Our firm has experience in each instance and can recommend the most efficient, most effective approach.

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When an individual passes away, it falls to those left behind to determine what happens with any property and assets that individual possessed during their lifetime. The process of finding all the property and assets can be extremely complex, depending on what the property is and where it is kept. It’s relatively simple to find things like a house and a car, as those are large, tangible items. But in many cases, a person’s wealth that may be passed to beneficiaries and heirs can be difficult to locate, especially if the assets are intangible items such as investment accounts and partnership interest. Often, the breadth and nature of an individual’s property and assets hasn’t been communicated to any loved ones. This makes it far more difficult to locate some of the following assets:

• Bank accounts
• Brokerage accounts
• Property titles
• Insurance policies
• Interest holdings in partnerships or corporations

Records of these assets, and the ability to access them, are necessary to complete probate and ensure all heirs and beneficiaries receive their share.

Who is Authorized to Access a Decedent’s Assets?

Although family members may perform a basic database search following the estate owner’s death, they will find it difficult to get information about, let alone access to certain things like retirement or bank accounts. If the decedent planned ahead, they may have named a third-party to be able to ask questions or access the account in the event of an emergency or their death. But if no other party has been given the authority to access that information, most financial institutions will require letters testamentary or court orders to release information. Often it falls to the estate’s executor to access those assets. Also termed an administrator, executors are empowered either by the decedent or by the courts to manage the decedent’s affairs following death.

A probate case concerning the estate will need to be opened before an administrator – independent or dependent – can start accessing assets.

An independent administrator is named in the decedent’s will and has broad powers in discovering and managing a decedent’s assets. A dependent administrator is designated by the court if no one is specified in the will. Dependent administrators are limited in comparison to independent executors and must receive court authorization before they can access or make any decisions regarding the estate’s assets.

 Leaving Assets Behind? Create and Leave a Will 

If you know you’ll be leaving behind considerable wealth, invest a small amount of time into creating a will. Though it is fairly simple to create one, it is recommended to have an estate planning attorney help with this. (We are currently working with a client where the decedent used a software program to create her will, and there are lots of problems with it that have caused the client to hire our firm to resolve.) Once you have created your will, put it in a place where loved ones can easily find it. Make sure an executor has been named. Your will should also include a general summary of the estate’s assets and where they can be found. This information will be valuable when it’s time for your executor to gather property for probate.

Where Can an Executor Search for a Decedent’s Assets?

If no estate planning documents are available to provide an inventory and location of assets, the only option is to begin a thorough search that may include the following:

• Searching the decedent’s home for documentation – The first step in every asset search is surveying the decedent’s home for any helpful documentation. This could be a will, but it could also be property titles, account passwords, contact information for an attorney or CPA, or anything else that could be helpful in guiding the executor. If important paperwork is at the decedent’s home, it may be located in a filing cabinet, a safe, a lockbox, or another secured container. If you are lucky, the decedent will have everything specified in the documents they leave behind. If not, you’ll need to dig deeper.
• Searching the decedent’s phone or computer for information records – If a home search doesn’t turn up any critical paperwork, an independent administrator (or authorized dependent administrator) can search the decedent’s phone and computer for information. Chances are, these devices will be secured, but administrators may hire a computer forensics expert to crack through the device’s security and search for passwords, account information and the like. Authorized administrators are allowed to hire anyone they deem necessary to access the decedent’s assets.
• Contacting financial institutions and working with them to access accounts – Regarding bank, brokerage and retirement accounts, the first step is locating them. This can be a major challenge itself, and it may only be the beginning. Once the decedent’s accounts have been identified, the administrator will need to open up communication with the relevant banks or financial institutions. The mission here is to convince the institution to provide account information, but this rarely comes easy. The manager in charge of the decedent’s account likely won’t have the authority to provide this information. Further, banks almost always deny account information requests unless compelled to do so.
• Seeking court orders to authorize access or compel a third party to cooperate – When access-related roadblocks do emerge, and they will, administrators will need to get the courts involved. In most cases, financial institutions will provide the desired information if they receive a court order, but it must include the right provisions. If financial institutions are particularly stubborn, they can be compelled to respond to a court summons and explain their reasoning. In the majority of instances, it won’t come to this.
• Locating the decedent’s accountant, attorney or insurance agent – The decedent’s accountant, attorney and insurance agent can provide extremely valuable insight into the decedent’s assets, where they may be located, and whether the estate is involved in any judgments. You can track down essential financial documentation such as tax returns as well.

Searching for a Decedent’s Assets? Consult with an Experienced Estate Planning Attorney

If you’ve stepped into an administrator role and are responsible for tracking down a decedent’s assets, it can be overwhelming. Our firm has assisted many administrators in this process, and it typically requires detailed, creative thinking to complete. If you’re an estate’s administrator or a potential heir, and you’re not sure what the next steps are, our expert team of CPAs and attorneys can offer solutions and expedite the process of finding a decedent’s assets.

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Talk of condemnation and eminent domain are standard for most attorneys, but they are not as well understood by the general public. This is due in part to the multiple definitions of condemnation. The most widely accepted explanation of this term is generally the declaration of something as reprehensible or wrong, or the declaration of something as unfit for use.

However, when it comes to condemnation and eminent domain and their relation to each other in the legal sphere, the definition rings a little different.

The Basics of Condemnation and Eminent Domain

The power of eminent domain is the government’s right to take private property that is intended for public use. In this scenario, condemnation describes the process by where a government agency can utilize the power of eminent domain.

Condemnation and eminent domain have long been an issue in American history as the country has grown and required modifications of land for the people who live on and around it. For example, as a form of condemnation, the government may need a particular piece of property to:

• build or expand a public road
• enact measures for flood control
• perform infrastructure work such as building a school

Under the lens of eminent domain, the government does have the power to take property used for public use, but both the federal constitution and state laws require fair compensation be paid to the landowner. Specifically, the United States Constitution features the Takings Clause, which stipulates that the government cannot take property without providing just compensation to the owner.

As you might imagine, there is not always an agreement as to what constitutes as fair. For this reason, it is not uncommon to have hearings and disputes with the government over the property’s land value and the amount being paid for it. Contrary to what you may think, there does not have to be a final determination of just compensation before the government may take possession of the property.

Many times, the property is already in the process of public use while the parties are still debating the land value. As explained below, the parties can agree to government use of the property while the fair value is later determined in hearings and appeals.

The Main Steps in Condemnation and Eminent Domain

There are two main steps that must happen in a condemnation and eminent domain case:

1. Determining if the land in question is required for public use
2. Determining how much the property is really worth

When it comes to confirming land is indeed intended for public use, the government must indicate what they plan to use it for. Often in Texas, the government is serious about the process because it is needed to promote community safety via widening a road, expanding a landfill, or managing flood control.

However, there are instances in which someone could question the legitimacy of that public use. For example, if certain members of the government have become corrupt and abuse the process by taking land they do not need in the name of some political issue, it can be challenged. Proving corruption and an abuse of power can be an uphill battle. Another example might be if the government says they need six inches of a person’s land to widen a road. Six inches is not much; therefore, it may be questioned if there really is a proper “public use” argument. Yet, the landowner can be at a disadvantage in winning these cases if a safety issue is involved.

Once it has been established that the piece of property is indeed for public use, the next step is determining how much the land or property is effectively worth. This also includes consideration of how much the taking of that land might reduce the value of any remaining land on the property.

For instance, taking six inches out of a person’s front yard can be relatively minor in comparison to the size of the yard left behind.  However, if it is proposed that 20 feet be taken out of a front yard, it could mean that the property will no longer have much of a yard at all, which in turn can significantly affect the value of the house. In situations like this one, the government may be forced to take an entire lot even though they only need 20 feet of it solely because of the damage it will do to the remaining lot.

The Sometimes-Unusual Timeline for Condemnation and Eminent Domain

Although some might think the process of condemnation and eminent domain would be linear, there are times when it is not.

Once both parties have agreed that they are not going to challenge the public necessity of the property, a special commissioner’s group may convene and determine the initial price they will offer for the property.

At this point, the government can go ahead and begin clearing and using the land for the intended public use even though there may still be quibbling over the price.

For example, the original value determination may be $5 per square foot. It is possible that the landowner could find an appraiser to testify that the property is actually worth $8 per square foot. Should this be proven in a court of law within the county of the property, the landowner might end up making more money than previously thought. That said, if during the litigation it comes out that the property is actually only worth $4 per square foot instead of $5, the landowner will likely lose that extra dollar per square foot.

However, in most cases there tends to be a settlement that ends up being somewhere between the initial offer and the new appraised price, which negates the need for litigation. Still, there are some cases that will go to court to determine the rightful value of the property.

If you have questions about condemnation and eminent domain, protect your rights by consulting with a reputable and experienced attorney.