Estate Planning Considerations for Restaurant Owners
Authorize a Trusted Person to Act on Your Behalf
- Medical power of attorney.Your physical health and well-being are among the most pressing concerns. Using a medical power of attorney, you can give a trusted family member or friend the authority to make health care decisions on your behalf if you are unconscious or otherwise unable to communicate your wishes. This document, along with a living will specifying your wishes for your end-of-life care, will ensure that you receive the type of medical care you want.
- Durable financial power of attorney. A financial power of attorney will authorize someone you have chosen to make financial decisions on your behalf as specified in the agreement. If you wish, you can authorize your agent to manage all aspects of running your restaurant. A durable power of attorney remains in effect after the principal (you) becomes too ill or disabled to handle the financial matters covered in the document.
Choose a Successor and Decide How to Transfer
- Review partnership or limited liability company (LLC) operating agreement. If your restaurant is a partnership or LLC, the partnership or operating agreement may contain restrictions on transfers which could have an impact on your estate planning. If your restaurant is a franchise, the franchise agreement may also impose restrictions on future transfers. As a result, it is important to review these documents during your estate and business succession planning.
- Think about executing a buy-sell agreement. If you co-own your restaurant with one or more other individuals, it may be beneficial to consider a buy-sell agreement, which is designed to clearly set forth the rights of each of the owners in transferring their interest, making it easier for the owners to exit the business when the time comes.
- Consider life or key person insurance. If a family member, co-owner, or employee wants to purchase your ownership interest in the restaurant at your death, insurance proceeds can provide much-needed liquidity. If you wish to retire, an installment sale may be another solution enabling your successor to purchase the business over several years if they are unable to raise the funds to pay for it as one lump sum.
- Consider a pour-over will and revocable living trust. If you transfer ownership of your restaurant to a revocable living trust during your lifetime, you can continue to retain full control of the business if you name yourself as the trustee. A successor trustee can be designated to take over if you fall ill or pass away and can manage the trust property and make distributions to beneficiaries you have named. The pour-over will ensures that any property not transferred to your trust prior to your death is transferred to it upon your death. This can be a helpful tool if you are unable or forget to transfer your restaurant to the revocable living trust.
Business Licenses and Permits
- Change the name on record. If you are operating your restaurant as a sole proprietor, it is not considered a separate legal entity. When you die, your business assets may be transferred to a successor who can then continue to operate it as a new business. Your successor will need to change the name of record on all licenses, permits, and registrations. If your restaurant is a separate legal entity, it will continue to exist even when you pass away, and the business licenses and permits may not need to be amended.
- What about your liquor license? Obviously, not all restaurant owners hold liquor licenses, but for those who do, there are special considerations you and your successor should keep in mind as plans are made to pass the business on to your successor. The transfer of a liquor license is more complex than other transfers of money or property belonging to the business owner. Although the personal representative or successor may be permitted to retain the liquor license until it is time to renew it, it is likely the new owner will need to obtain his or her own liquor license when it expires or complete a transfer application—which may or may not be approved. The new owner of the restaurant may be required under state law to meet certain legal requirements to hold a liquor license. This may involve a lengthy process involving a transfer application, a criminal background check, fees, and other measures designed to ensure regulatory compliance. As a result, it is important to choose a successor that is unlikely to be found unfit to hold a liquor license by the state agency who issues them. If the license is issued to an LLC or other legal entity, the state agency may require disclosure of all of the owners (or membersin the case of an LLC), which could cause additional complications or require certain steps to be taken in the case of a transfer of ownership. Some states may also place restrictions or limitations on trust ownership of license-holding businesses. These considerations should all be discussed with your estate planning attorney to ensure that no disruptions in the operation of your restaurant occur.
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