In that, a sole proprietorship is entirely linked to the founder/owner, at the death of that sole proprietor the business cannot continue in its current form. The business will either need to be shut down or the tangible and non-tangible assets sold to another individual or entity pursuant to the last will and testament.
A few of the potential challenges realized at death would include the business immediately losing value as the business is directly linked to the sole proprietor, valuation of the business assets, and enough liquidity so that the estate would not be required to sell assets at fire-sale prices in order to settle the estate. Something that is often not fully considered by sole proprietors and their heirs is that, as in life, in death, there is not a separation of personal and business assets. So, the estate may be required to sell business assets in the same way they would personal assets in order to pay estate settlement costs. Another challenge that often arises is the expressed desire of the deceased owner to sell the business assets at death to a family member, but the family member, who was hoping to eventually own the business, does not have the needed liquidity at the time to purchase the business. And, of course, all of this, and more become even more challenging for survivors if the owner dies intestate, or without a last will and testament. So, there are not a few challenges for a sole proprietor in planning the eventual distribution or transfer of their business interest at death.
If a sole proprietor has wishes or goals regarding the distribution of their business assets at death, and/or values-based goals such as family harmony, a well-thought-out written estate plan is imperative. The owner may also need to give serious consideration to issues such as changing their business structure, providing additional liquidity at death, and the creation of a buy-sell agreement. And, as it is true with all strategic planning, you cannot get started soon enough.
Consider contacting a qualified estate planning attorney for a review of your plan, and if we can be of service in helping you think through your goals and desires please contact us.