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Posted by kastnna on September 10, 2007, 4:19 pm
> This is as I understand the situation. Friend's parents died, leaving
> a large farm to all offspring as beneficiaries. One of the offspring
> is going through divorce or just got divorced and wishes to keep
> estate settlement from exwife. Executor has worked with this request
> and set proceeds of estate in a S Corp with all the beneficiaries as
> owners. The beneficiaries wish to continue to hold the farm land as
> an asset and draw income from the lease of the land, except for one
> who wants to cash out. The S Corp does not have sufficient cash to
> pay for an owner to cash out.
How did this S corp come about? In the absence of the divorce was the
S corp still supposed to be established or was it done solely to avoid
inclusion in the divorce? If the later, did the other offspring
knowingly and willingly go into this situation?
If the relevant wills or trusts set in motion the S corp, then the
bylaws should clearly indicate how members can leave, who can join,
how capital is injected into the company, and what is to be liquidated
to handle liabilities (and in what order). If this was done solely to
help out the divorced offspring, I see a potentially huge breach of
fiduciary duty by the executor.
Tell your friend to read the bylaws of the S corp. Also warn him that
if he doesn't want to face this problem everytime someone in the corp
dies, they should consider building in a liquidity source (such as
life insurance, investments, etc). In just a few generations there
could be dozens of beneficiaries. What are the chances they will all
see eye-to-eye all of the time?
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