What are the rules for inheriting a corporation?

Question

If a beneficiary named in a will receives 100% ownership interest in an incorporated company, are they exempt from being required to use some or all of the corporation assets to cover  liabilities in the estate, or , are liabilities the responsibility only of those beneficiaries receiving privately held assets, if not otherwise noted in the will?

Edward Armstrong · Answer

Generally, the corporation's liabilities are the responsibility of the corporation. As far as the person responsible, if any, to pay liabilities, it will depend on the structure of the corporation and the shareholders that own the company. Was the decedent the sole shareholder? Did he/she owe money to the corporation? Was it an "S" corporation or a "C" corporation or some other type of entity? If the corporation owed income taxes, responsibility for the taxes might be a separate issue from responsibility for other debts, etc. More information is needed to answer this question adequately.

Victor Waid · Answer

You are advised to seek the written legal opinion of a probate lawyer and be prepared to pay for the opinion. Having said the preceding, the stock of the corporation(100%) interest is the transfer of a property interest to the person/ beneficiary so designated in the will or trust, not subject to the personal debts incurred by the decedent. The assets of the corporation belong to the corporation and may be subject to corporate debt, but still represented by the shares of the corporation, and belong to the beneficiary of the corporation ownership interest so designated, without further liability of the estate, unless commingled with the deceased's other assets and liabilities.

Brian Haggerty · Answer

It depends on how the will is drafted. It may specify what assets are subject to which liabilities. If not, by default the residue would be subject to debts before a specific devise.

Norman Green · Answer

This depends son the exact language of the will.  If the will simply provides, I give my stock in C to X, and the rest of my estate 20% to X 40% to Y and 40% to Z, then the other parts of the estate must be sold first to pay debts.  But, under many circumstances, stock in the corporation would also need to bear its share of the debts.

John Brennan · Answer

I would have to look at the entirety of the will or estate plan but generally well state that the estate of the deceased is liable for his remaining obligations. There is a pecking order regarding which assets will be sold or liquidated in order to be able to pay off the decedent's remaining obligations. You would be wise to contact my offices and provide all of the details. Then you can be given firm and specific advice.

James Oberholtzer · Answer

All assets in the probate estate are liable for the debts of the probate estate.

Ben Liu · Answer

It will depend on what the will states. If there are claims against the estate, the personal representative needs to address them before making distributions.

James Weiner · Answer

The estate's liabilities come out FIRST before any assets are distributed then assets of specific devise to specific beneficiaries generally these cannot be sold or encumbered by debts of the estate without the remainder being fully used up. Then the remainder goes to beneficiaries. So generally the estate's liabilities come out of the remainder's share or the remainder beneficiaries portion of the estate and only if there is not enough to pay the liabilities are the specific bequests affected by debts. Your question is not the right way to look at the issue where in the distribution schedule is the corporation's shares?

Bernard H. Greenberg · Answer

If a beneficiary inherits stock in a corporation, that is what they have inherited, the stock. Whether that stock allows them sufficient votes to control the corporation is a different question.  The assets of the corporation may not be used to satisfy the bills of the estate. However, whether the corporation must liquidated is also a different question.  You should visit with an attorney specializing in estate matters for further information.

Dara J. Goldsmith · Answer

You need to have the Will reviewed for the specific details about how debts are handled.  Generally speaking, if certain people are designated to get certain assets then those are usually net of the estate debt and the debts fall to the residuary.  However, if there are insufficient assets in the residuary, than all specific bequests may be surcharged. You need to have an attorney review the actual Will as well as the inventory of the assets , and possibly other probate pleadings, i.e. creditors claims, and advise you.

Mark T. Peters · Answer

The estate's assets have to be used to pay estate's debts.  Generally, if there are insufficient assets to pay all of the debts, the inheritances are charged equally.  So the answer is, it depends on what the will says, value of the distributions, etc.  Talk with estate's attorney to figure it out.

James Frederick · Answer

If the corporation is part of the estate, then its assets are available for payment of claims against the estate. A beneficiary receives only the net value of assets after payment of administrative expenses and creditor claims.

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What are the rules for inheriting a corporation?

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