If you are a restaurant owner, like most other small business owners, you have many demands on your time. Your schedule may be even more demanding than most, and your working hours may extend far beyond the typical working day. Nevertheless, it is very important for you to set aside some time to create an estate and business succession plan: If you become ill or suddenly pass away, who will run the business in your stead? Is there someone else who is authorized to make payroll, pay your bills, and make business-related decisions? Failing to create an estate and business succession plan can lead to big headaches for your family, business associates, and employees—or could even lead to the loss of the restaurant. Thinking this through now can provide substantial peace of mind, and it is well worth setting aside some of your valuable time. Here are some of the most important factors you should consider:
Authorize a Trusted Person to Act on Your Behalf
Particularly if you are the sole proprietor of a restaurant and do not have co-owners who have the authority and the ability to operate the restaurant in your absence, you should give someone you trust– who has the ability to step into your shoes– the authority to act and make decisions on your behalf.
- Medical power of attorney. Your physical health and wellbeing 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
The last thing you want is for your restaurant to simply be unable to open one evening if you have a heart attack and cannot be there to operate it. It is important for there to be a family member or employee who is well-trained and able to step into your shoes in case the unexpected happens.
In addition, it is important to think now about whether to transfer your restaurant during your life or after death. Regardless of whether you transfer ownership and management of the business during your lifetime or at your death, it is crucial for the individual who will take over the reins to have plenty of training to prepare him or her for this new role. Many business owners transfer management and ownership incrementally to facilitate a smooth transition. As experienced estate planning attorneys, we, along with your financial advisor, can help you think through all of the legal, tax, and financial implications of the 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.
Add Estate Planning to Your Menu
When you are working twice the hours of the average person, it is hard to find the time to do anything else! However, it is essential for the continuation of your restaurant business and your peace of mind to put plans in place to ensure that it can operate even if something should happen to you. Your family, business partners, and employees will thank you for helping them to avoid the headaches (and possibly heartaches) that will inevitably occur if you fail to plan in advance. Give us a call today to set up a meeting so we can help you design an estate and business succession plan that will best address your particular circumstances.