I want to share a story with you that I hope can help you as you make decisions about your business.
This summer, I had a friend pass away. She had her own business and was the Sole Proprietor. Death is a funny thing; it really makes you learn a lot about bureaucracy and people. Going back to my friend, she put some arrangements in place, however nearly not enough.
She owned a small business, had a checking account and a couple of credit cards linked to the business. She knew she was going to die for several years. During that time she started to make arrangements for everything. She went into the bank and had the Executor of her will put on her business account as a signer. She set up a trust. She also opened a second bank account for the person who would be running the business for her.
Just a few weeks before she passed away, I went to the bank with the Executor of her will to be put on the second account because I was going to run her business for her until it was sold. We reviewed everything with the bank. We reminded them that she would be passing away any day, and that she had the other business account. They reassured us all was in good order. I went with the Executor of her will to the attorney to verify the trust was in place, and all was good. Everything would roll over into the trust, and there was nothing we needed to worry about. Needless to say, it was NOT all good!
After she passed away, her bank account for the business was locked up because she was a Sole Proprietor. They [the bank] would not release the funds even though the Executor was a signer. We had checks bouncing all over town. Then we went to the attorney to get a copy of the trust to show the bank. Because she was a Sole Proprietor, the trust had to go to Probate court. Now we were stuck. We had to wait for court to settle the trust so we could show the bank, and only then could we run the business that we thought was all setup for a smooth transition.
It eventually worked out, after we had 20 checks bounce and $500 in lawyer fees for something that everyone thought was all setup.
My recommendations to anyone who owns their own business: think very carefully about being a Sole Proprietor, and verify everything is in place in case you have an accident. Ask questions and get it on record in email or written documentation. This situation was very difficult and frustrating for myself and the Executor of her trust. It was a time when we were both vulnerable and mourning the death of a loved one.
For additional information on this topic, you can also look at the Polymath blog on Business Continuation.