Most restaurant owners want to provide for their families when they die and protect their assets from liability. However, there are issues if the owner just conveys the real estate in a Will. To avoid these issues, restaurant owners should instead consider passing down interests in their companies and placing each piece of underlying real estate in its own legal entity. This post shows some of those issues and how to avoid them.
The Problem With Testamentary Real Estate Transfers
Passing down the real estate interests associated with restaurants can turn into a convoluted mess. For instance, we have seen situations where clients have passed down numerous undivided interests in the underlying real estate of their restaurants over generations. Some of the transfers were documented. Others were not documented or were documented incorrectly. After three or four generations of continued testamentary transfers, these issues get extremely confusing and convoluted. Sometimes even title companies will no longer issue good title to a property without extremely costly legal analysis.
So what is the solution?
One Solution
Restaurant owners should consider placing each restaurant and its underlying real estate into separate legal entities. This solution offers both asset protection and a documented record of ownership. Additionally, the interest in each separate entity can and should be conveyed either in trust or through the owner’s Will. The solution touched on here provides a simple way to pass down restaurant real estate, rather than convoluting the real property ownership and dealing with associated title insurance. Finally, this solution can be surprisingly affordable, especially given both the asset protection and estate planning benefits associated with it.
About the author: Matthew Sanderson a restaurant lawyer in Texas. “Good service with a smile” is his motto.
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