What Happens to Shares of Corporate Stock at Death?
What Happens to Your Corporate Stock at Death?
An corporation is a legal entity having 1 or more shareholders doing business together. Previous months we have discussed the types of corporations available and the advantages and disadvantages.
For example, John owns a dog grooming business through a corporation. He is the only shareholder of the corporation, Dog Grooming, Inc.
Liability protection is one of the reasons why people decide to set up a corporation to run a business. This helps receive liability protection benefits your corporation has. It establishes correctly with the required corporate formalities followed.
What Happens to John’s Interest in Dog Grooming Inc. at Death?
Let’s assume that John is married with kids. John is the sole shareholder of the Dog Grooming Inc.. John has not done any type of estate planning. Upon John’s death, his interest in that corporation will HAVE to go through probate court system.
John’s business is valuable. His family wants that value when John dies. John’s family will have to probate the corporation in order to gain control of the business, be able to access the business bank account, and sign contracts on behalf of the business. This will likely take a year to two years to complete. This can cost the family thousands depending on the value of the business. The higher the value of the business, the higher the statutory probate fees will be.
In our example, John’s wife wants to take charge of the corporation and continue operating. But, she will need to wait until the court has given her legal powers to administer John’s estate and take control of the company. This wait will likely cause an interruption in the business. It will take some time for the court to put John’s wife in charge of the company until she can write checks from the bank account to pay bills, withdraw profits, or the myriad of other business related tasks she needs to complete.
What You Can Do
You can avoid being in John’s situation with his shares in corporate stock.
Thus, you must properly plan for a corporation interest like any other asset (home, bank account, investment account, LLC). As mentioned before, probate is EXPENSIVE & LENGTHY, not to mention a PUBLIC process. John can set up a living trust and make sure that he does the proper planning to ensure that his estate plan is all encompassing and takes into consideration the corporate interest to avoid probate.
So, if you have a corporation or are thinking about establishing a corporation, be sure your shareholder interest is integrated and accounted for in your personal estate plan TO AVOID PROBATE. Feel free to contact our office for a free consultation, (818) 649-9110.