Sole proprietor businesses are often too closely tied to their owners to be the same without them. For owners, their businesses are their whole lives, so it can be especially devastating when the owner dies.
When a sole proprietor dies, they usually leave behind assets and debts. Like any death, if the owner leaves behind a will, that document will settle their assets and debts. When a sole proprietor dies and leaves behind a will, all people need to do is follow it.
However, sole proprietors may not have a living will to leave behind. When that happens, things can get complicated. Sole proprietors are responsible for their businesses assets, which means they’re responsible for its debts too.
Settling the business’s and the owner’s personal remains can be tough. It helps to know about the processes of handling an owner’s passing. And don’t think about death too much, or else it may hinder your business through the power of negative thinking.
Keep reading below to learn what happens if a sole proprietor dies, without a will.
When a Sole Proprietor Dies, Their Debts Remain
Debts don’t die; they only go away when they get settled. In a sole proprietorship, any debts that the sole proprietor takes out is their personal responsibility. It doesn’t matter if they take money out for the business or not.
That means any debts that the sole proprietor took out goes to their next of kin according to the state’s probate law. The IRS and state laws do not see sole proprietorships as any different from a person’s personal financial dealings.
The next of kin will usually choose to dissolve the sole proprietorship after inheriting such sudden debt. This means they need to cancel any licenses and registrations the sole proprietorship had.
To settle debts from the business, the next of kin usually sells any assets associated with the business. Usually, that sale covers the debt. However, there are times when the debt may exceed the assets’ value, leaving the next of kin responsible for paying it back.
To avoid this, sole proprietors should hire a will lawyer while they can. Having a will protects their loved ones from sudden expenses after their death. Also, a will lets the people they leave behind know that you thought of them in life – it’s an important, small comfort in a dark time.
Two Things Are Sure In Life: Death and Taxes
When a sole proprietor dies, the next of kin should notify the federal government. Contact the IRS and notify them about the death. However, their dealings with the IRS don’t end there.
The next of kin also need to file a final tax return for the sole proprietorship. Even though the company may shutter after its owner dies, it still likely conducted business during the fiscal year. You’ll still need to account for that income.
Having A Will Protects You, Your Business, and The People Close To You
Getting a will is one of the most responsible things any person can do. When a sole proprietor dies, it will protect their family and business partners.
Yet, accepting that fact is an important part of being a responsible person. Making a will means planning for an inevitable future without you – and it’s a way of caring for the people you love.
While you’re alive, it’s important to run an efficient business, and we can help with that. Although we don’t offer a template for a will, we offer many other document templates that will make your sole proprietorship a success. Use these documents to make sure you leave behind a successful business for your loved ones.