Drafting Your Will as a Business Owner

Key considerations regarding tax, liquidity and more

Drafting a will as a business owner may require some additional planning to ensure your interests are handled appropriately after your death. First, consider how your business interests will pass to your beneficiaries. If you don't mention your business interest specifically, it will pass as part of the “rest and residue” of your estate—meaning it’s distributed along with other remaining assets to whoever you name. Alternatively you can make it the subject of a specific gift. For instance, if you own a sole proprietorship, you might name a particular individual to receive the business and its assets with the expectation that they will continue to operate it, wind it down or sell it off. For partnerships or corporations, it’s important to check whether your partnership or shareholders’ agreement contains any provisions about what happens to your interest upon your death. If such agreements exist, your will should be consistent with them.

Tax considerations are another crucial aspect. Depending on the structure of your business, your estate may face capital gains taxes on the deemed disposition of your interest at the time of death. If the business holds significant assets or has appreciated in value, these taxes could affect the estate’s liquidity and the net inheritance for your beneficiaries. Consulting with a financial advisor or tax professional can help you estimate potential tax liabilities and consider strategies—such as using a spousal rollover, claiming the lifetime capital gains exemption (if applicable), or structuring your estate to minimize taxes—to ensure your heirs receive the maximum benefit. You might want to consider how some additional life insurance could provide extra funds to address any tax liabilities rather than need to take the taxes out of the rest of your estate.

Think about other obligations the business has, such as outstanding loans, contracts, or leases. Your will could address how these obligations will be managed. Will the executor sell business assets to cover debts, or will the named beneficiary deal with them as part of the continued operation of the business? 

For partnerships, your will can clarify whether your partnership interest should be sold back to the remaining partners, transferred to a specific beneficiary, or dissolved. If you hold shares in a corporation, you might consider whether the corporation’s bylaws or shareholder agreements allow your shares to be passed on to your chosen beneficiary, or if they require a buyout by other shareholders. Including specific directions about these scenarios can ensure that your intentions are upheld.

Finally, the nature of your involvement in the business matters. If the business relies heavily on your expertise or personal relationships with clients, your death may affect its viability. You should outline plans for a transition, whether that involves selling the business, identifying someone who can step into a leadership role, or making arrangements to ensure the business is sold or wound down in an orderly manner. You might provide instructions for how your executor should approach finding a buyer or transferring management responsibilities.

By carefully considering the legal, financial, and operational aspects of your business, you can ensure your will provides clear, practical instructions that align with any existing agreements and mitigate tax burdens. Doing so not only protects your beneficiaries’ interests but also helps preserve the business’s stability and value during a challenging time. Consulting with your financial advisor and a practicing lawyer with experience in wills and estates is crucial until you are confident that you fully understand your legal rights and responsibilities.

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