Estate Planning Considerations for Restauranteurs

Gabriel Katzner - May 11, 2020 - Estate Planning
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If you are a restaurant owner, like most business owners, you have many demands on your time, but you should still set aside a few hours to create an estate and business succession plan. If you become ill or pass away, who will run the business? Is there someone else who can make payroll and handle business-related decisions? Failing to create an estate and business succession plan can lead to big headaches for your family and employees, and may even lead to the loss of the restaurant. Thinking this through now can give you peace of mind. Here are some of the factors you should consider. 

Choose a Person to Act on Your Behalf

If you are the sole proprietor of a restaurant and do not have co-owners with the ability to operate the restaurant in your absence, you should give someone you trust the authority to make decisions on your behalf.

  • Medical power of attorney. Your physical health is the most pressing concern. With 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 unable to do so yourself. This document, along with a living will specifying your wishes for your end-of-life care, will make sure you receive the type of medical care you want. 
  • Durable financial power of attorney. A financial power of attorney will authorize someone you choose to make financial decisions on your behalf. If you wish, you can authorize your agent to manage and run your restaurant. A durable power of attorney remains in effect after the principal (you) becomes unable to handle specified financial matters.

Choose a Successor and Decide How to Transfer

You may not want your restaurant to simply be unable to open one evening if you fall ill and cannot be there to operate it. It is important to choose a family member or employee who can step in if the unexpected happens.

You should also decide whether to transfer your restaurant during your life or after death. Regardless of whether you transfer ownership and management of the business, you want the individual who will take over the reins to be ready for this new role. Many business owners transfer management and ownership incrementally. 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. Review these documents during your business succession and estate planning.
  • Consider 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 will set forth the rights of each of the owners in transferring their interest. 
  • 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. An installment sale may be an option if you plan to retire, since it lets your successor purchase the business over several years if they can’t pay for it all at once.
  • 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 if you 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 members in 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.

Add Estate Planning to your To-do List

For the continuation of your business and your peace of mind, put a plan in place to ensure that your restaurant can operate even if something happens to you. Your family, business partners, and employees will thank you for saving them from the headaches and heartaches that will happen if you fail to plan in advance. Contact us to set up a meeting, and we can help you design an estate and business succession plan that will meet your needs.

You can use the link below to schedule a call with Gabriel Katzner, or just call us at 855.528.9637 to learn more about how best to plan today to protect those most important to you




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