Posted in Blog - "Altman Speaks"
Sharing Isn’t Always Caring!
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.