About the Business Debts liability type
Use this liability type if the estate or trust has to settle some business debts. Under this business structure, where the self-employed worker and the business are considered one and the same, liability is unlimited, meaning the individual's personal assets can be seized by creditors.
As such, even upon the passing of a sole proprietor, any outstanding business debt must be listed as a Liability in the Inventory and settled with creditors.
How to add a business debt
When listing the debt in the Inventory, include:
- The amount
- A brief description of the debt
- The business name
- The business or tax ID number
Additionally, if the debt is secured (e.g., a bank has a right on an asset of the deceased or the settlor), select this option to link the debt to the asset charged with the security. The asset must already be included in the Assets section of the Inventory.
Additional notes on partnerships and estates
Note that businesses formed as Partnerships are normally ended by the death of a partner, and the estate is entitled to the deceased's net interest. However, some partnership agreements may provide for the continuation of the business even after the death of a partner; the executor should review the partnership agreement and determine if any steps need to be taken to protect the deceased's interest, and potentially to also ensure the day-to-day operations of business are being handled.