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What happens to your business when you die? Challenges your executor faces and how you can help

Content provided by Sanlam. See Financial Solutions for Business Owners, for tailormade financial advice.


When you, the small business owner, dies your executor may face some challenges which are specific to the nature of your assets and your business. Remember that your estate cannot be dealt with in the same manner as that of a retired person who has a simple estate and whose main income is a pension. 

For starters, the structure of your business could pose some challenges. If you operate as a sole proprietor, all the assets are legally held in your own name.  If you are married in community of property, your spouse legally owns half of the assets of your joint estate.   In practical terms, that could mean your spouse owns up to half your business.  Even if you are married out of community of property, but with the accrual system, it could mean that your spouse has a claim which the executor would be obliged to satisfy out of business assets. 

You might have housed your business in a CC or company, and be the member (or one of the members), or the shareholder (or one of the shareholders). If you haven’t submitted the annual returns to the Companies and Intellectual Property Commission (CIPC), your executor could find that the entity has been deregistered.  Your executor would then not be able to transfer your membership or shares. To correct this, your executor would have to lodge those returns retrospectively. The same would apply if audited financial statements were required or if tax returns were in arrears.  If an accountant has to be employed to attend to such matters, this creates a further expense which has to be paid from the cash resources of your estate.

Usually creditors owe your estate (or your company) money, and not all of them pay their debts when called upon to do so.  The heirs usually expect the executor to take legal action in such cases, but forget that this requires immediate cash to fund initial expenses.  Litigation may delay the winding up of your estate and could drain the cash resources.

As a business person you would have entered into many contracts, and not all would be in writing.  Whether written or oral, the interpretation of contracts can be difficult, and your executor might not understand what needs to be done to enforce your rights or to withdraw from your obligations. If you are married in community, the Matrimonial Property Act grants an exemption  to the requirement for joint consent, provided the contract was entered into in the normal course of business. A contract to sell your business interest to your partners on death would not enjoy  the exemption, and could be opposed by a surviving spouse.  

Merely ensuring that a buy-and-sell agreement is properly carried out may require a lot of extra work, especially if the sum assured differs materially from the true market value of your business interests.  A valuator might have to be employed and paid for his/her services.

You might have signed a personal suretyship for the debts of your business, and if these cannot be paid or taken over by your partners, the lender might lodge a claim against your estate.  This could lead to a forced sale of assets, including business assets.

But the most important challenge of all facing your executor is when there is no valid buy-and-sell agreement in place.  Your executor has a duty to preserve the assets in your estate, and must investigate the sustainability of your business.  Unless you have a succession plan in place, your executor might be compelled to sell your business either to your partners (if they can afford it in the absence of a buy-and-sell agreement) or on the open market. 

Since 65% of deceased estates which Sanlam Trust administers are found to be short of cash, it is definitely in your interest and that of your heirs to do some comprehensive estate planning in order to preserve the fruits of your hard work over many years.

Article written by Clive Hill, Legal Adviser, Sanlam Trust

Copyright © Sanlam, 2016

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