What Happens to Shares of Corporate Stock at Death?
What happens to your corporate stocks at your 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. As I mentioned in previous months, to receive the benefits of the liability protection your corporation has to be established correctly with the required corporate formalities being followed.
So, what happens to John’s interest in Dog Grooming Inc. at his death?
Let us assume for this example 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.
His business interest is valuable and his family wants the value it has to be passed onto them. In order to gain control of the business, be able to access the business bank account, sign contracts on behalf of the business, John’s family has to probate the corporation first. This will likely take a year to two years to complete and 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. 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 because it will take some time for the court to put John’s wife in charge of the company so that she is able to write checks from the bank account to pay bills, withdraw profits to pay her bills, or the myriad of other business related tasks that need to be completed.
Thus, a corporation interest is like any other asset (home, cash in a bank account, investment account, LLC) and must be planned for properly. As mentioned before, probate is EXPENSIVE & LENGTHY, not to mention a PUBLIC process. To avoid it, John can set up a living trust and make sure that the proper planning is done with respect to his corporate interest to ensure that his estate plan is all encompassing and takes into consideration the corporate interest.
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.