Does an Estate Cover Sole Proprietorships?

by Heather Frances J.D. Google
Your sole proprietorship is treated like the rest of your estate.

Your sole proprietorship is treated like the rest of your estate.

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A sole proprietorship is operated under the name and personal responsibility of the owner, and unlike other business forms, it is not legally separate from the owner. If the owner does not take special precautions to transfer the business assets, the business will be included in the owner’s estate upon his death.

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Sole Proprietorship

Sole proprietorships are the alter egos of their owners. Even if the business operates under another name, the business assets and debts are in the owner’s name, and the owner is personally liable for the business’ debts. For example, the business’ bank account belongs to the owner, even if the business’ name is also listed on the account.

Owner’s Death

Since the owner and his business are legally inseparable, the sole proprietorship legally ends upon the owner’s death. The business is not an independent legal entity that can be passed on to others. Unlike a corporation, sole proprietorships do not issue stock, so the business itself cannot be given or sold by a transfer of stock. However, individual assets can be given to particular people. For example, the business vehicle could be left to the owner’s brother in the owner’s will.

Assets and Debts

The sole proprietorship’s assets and debts become part of the deceased owner’s estate since they are in the owner’s name. If the business owns anything, such as real estate, tools or inventory, those items were purchased in the owner’s name even though they may have been purchased for business use. Similarly, loans the business may have are actually issued to the owner and guaranteed by him personally.

Handling the Estate

Since the business becomes part of the deceased’s estate, the deceased’s business affairs are handled in the same way as the rest of his personal affairs. If creditors have claims against the estate, whether the debts were business or personal, his assets may be sold to pay those debts. Once all the debts are paid, remaining assets are distributed according to the terms of the decedent’s will or state law. Thus, business assets may be split among beneficiaries or heirs.