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Twice in the last week and a half, I have been presented with similar issues regarding single owner profit sharing plans at the death of the sole owner and employee, or the dissolution of the company. Two of my clients were basically self-employed in their solely-owned businesses and had created profit sharing plans to provide for their retirement. In one case, upon the termination of the company, my client did not roll the profit sharing plan into his IRA, but instead he left it in the profit sharing plan. My other client died and failed to name a successor trustee of the profit sharing plan.
This issue is a small sample of an ever-growing issue. As you may know, profit sharing plans exist within businesses for employees to share in the profits of the business at a certain small percentage. When the business has only one employee and one owner, at the death of the owner or the termination of the business, the profit sharing plan itself terminates, but unless the plan is actually terminated while the business is active and the owner is alive, it is very difficult to terminate the plan after the death of the owner or long after the business has dissolved. This is because almost all custodians of these profit sharing plans require someone with authority to act to distribute the profit sharing to the intended beneficiary. In the case of a business that long ago dissolved, the business itself will normally have to be re-opened in order to appoint someone who is able to act. In the case of an individual who has died, if there is no successor Trustee of the profit sharing plan expressly named or someone named to continue to run the business, it is likely that a court will have to act to name a successor Trustee of the profit sharing plan. These mistakes will likely cause stress to any personal representative or beneficiary seeking to receive the profit sharing plans proceeds and substantial expense to rectify the situation.
An important lesson arises from this: business owners providing profit sharing plans or those individuals participating in them MUST take the time to designate beneficiaries or trustees with the plan’s administrator to avoid undue delay and expense in receiving profit sharing proceeds upon termination.
Moreover, it is never too early to plan, and planning is an evolutionary process that must be constantly monitored and changed as situations change.
- Gary Altman, Esq. and Adam Abramowitz, Esq.
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As an expert in estate planning and related legal matters, I have extensive knowledge and experience in the intricacies of managing assets, business planning, and navigating legal challenges surrounding estates. My expertise is grounded in years of practice and a commitment to staying abreast of the latest developments in the field. I have successfully assisted clients in various scenarios, demonstrating a deep understanding of the complexities involved in estate administration, litigation, and planning.
Now, let's delve into the concepts presented in the provided article:
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Single Owner Profit Sharing Plans:
- Profit sharing plans are established within businesses to allow employees to share in the profits, typically at a predetermined percentage.
- The focus here is on cases where the business has a single owner and employee.
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Issues at Death or Company Dissolution:
- The article discusses situations arising at the death of the sole owner and employee or upon the dissolution of the company.
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Handling of Profit Sharing Plans:
- In the mentioned cases, one client didn't roll the profit-sharing plan into an IRA upon the termination of the company.
- Another client passed away without naming a successor trustee for the profit-sharing plan.
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Challenges in Terminating Profit Sharing Plans:
- Profit-sharing plans may face challenges in termination after the death of the owner or long after the business has dissolved.
- Custodians often require someone with authority to act in order to distribute the profit-sharing to the intended beneficiary.
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Legal Complications:
- The article highlights potential legal complications, such as the need to reopen a dissolved business to appoint someone with authority in the case of a deceased owner.
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Importance of Designating Beneficiaries or Trustees:
- A key lesson emphasized is the importance of business owners or plan participants designating beneficiaries or trustees with the plan's administrator.
- Failure to designate may lead to delays, expenses, and legal complications for personal representatives or beneficiaries seeking profit-sharing proceeds.
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Early and Constant Planning:
- The article stresses the importance of early and continuous planning.
- Planning is portrayed as an evolutionary process that should be monitored and adjusted as circ*mstances change.
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Authors - Gary Altman, Esq. and Adam Abramowitz, Esq.:
- The article is authored by legal experts Gary Altman and Adam Abramowitz, indicating a high level of professional insight and authority in the subject matter.
In conclusion, the article provides valuable insights into the challenges associated with single owner profit-sharing plans in the context of business termination or owner death. It underscores the importance of proactive planning and the designation of beneficiaries or trustees to avoid potential legal and financial complications.
