Proper transfer of a family business can be confusing when corporate documents and estate planning documents are opposed in purpose. The goal of such documentation is for perfect strangers to read your documents and use them as a blueprint to accomplish your wishes. In the case referenced here, we do not know for sure what Ms. Corr actually wanted. We do know she tried to ensure that her wishes would be met. We also know that a family was divided because the business documents and the estate plan were not in unison.
The Family Situation
Ultimately, it will be documents that determine our legacies to our children. In 2014 the Supreme Court of Virginia heard the case of Jimenez v. Corr. In this case a mother, Ms. Corr, passed. She owned 95 shares of a closely held company. Ms. Corr had a typical estate plan consisting of a pour over will and a revocable trust; her company ownership was subject to a shareholder agreement.
The shareholder agreement ordered the shares were to be bought by the company unless they could be passed to immediate family, which was articulated as the decedent’s spouse, children, parents or siblings.
The pour over will passed the shares to the revocable trust. Per the trust, a son could purchase the shares with a down payment and a 10-year promissory note. The trust pushed business ownership in a different direction than the shareholder agreement. The two opposing directions then led to the lawsuit.
Ms. Corr’s daughter was part of the company, and Ms. Corr’s son-in-law was a co-trustee of the trust. The daughter sued to ensure the shareholder agreement controlled the shares, which would force a purchase by the company. The Circuit Court held that the Revocable Trust held control, so the shares could not be purchased by the company but rather would be held and disposed of by the trust document. This case was appealed and the Supreme Court reversed, holding that since the son-in-law was not considered a close family relationship by the shareholder agreement, the shareholder agreement retained control.
Fighters understand that you never leave your victory in the hands of the judges. Here a family had done well enough to hold shares in a company and held enough assets to warrant a trust. However, the fate of the business and the family’s inheritance came down to a handful of unrelated strangers who happened to be Justices.
We do not know the financial status of the company or the financial status and abilities of the son-in-law who had an option to purchase under the trust. What if the son-in-law’s ownership would have compromised or hindered the company? What if his involvement would have negatively impacted the daughter? What kind of impact did this lawsuit have on the family as they sorted out what the document controlled?
Business and estate planning are often times complex processes. A closely held business is often the parents’ way to pass a legacy to their children. In both business and estate planning, attorneys and owners must spend time and effort using documents to convey the intent of the owners. Remember: the goal is that perfect strangers can read your documents and use them as a blueprint to accomplish your explicit wishes. Make sure that both your business documents and your estate plan are not in opposition. Review them every couple of years to ensure business and family changes have not punctured holes in your plan. Ensure your attorney understands both your business and your estate plan thoroughly. Preparing a well-organized legacy is a lasting gift you can leave for your family.
Disclaimer: This article is for informational purposes only. No attorney client relationship is created based on this article.
By James Fairchild