May 16, 2014
Authored by: Luke Lantta
When it comes to estate planning and disposition of assets upon death, a business owner should pay careful mind to the type of business he or she owns and update his or her estate planning documents if the form of the business changes. InEngland v. Simmons, the Georgia Supreme Court had to determine a testator’s intent when he left his “personal assets” to his brother and sister and left his “business interests” in his sole proprietorship to his brother, sister, and two longtime employees.
Traditional Fine Art was the sole proprietorship of Robert Carl Haege. Therefore, it had no legal existence separate and apart from Haege himself. For these reasons, a trial court determined that all property associated with Traditional Fine Art should go to Haege’s brother and sister as “personal assets” – all property associated with the business was merely Haege’s personal property and, therefore, there was nothing to pass under the “business interests” clause.
The Georgia Court of Appeals, in a split decision, reversed. The appellate court determined that it was Haege’s intent to differentiate between his “personal assets” and personal property connected with the business. Furthermore, to conflate the personal property associated with the business and Haege’s other personal property would fail to give operation to every part of the will, in this case, the “business interests” clause.
Haege’s brother and sister did not dispute that a sole proprietor through his will may separately dispose of his personal property and his personal property connected with the sole proprietorship. That is hornbook law. Instead, the siblings focused on a curious clause in the will to contend that Haege only intended to distinguish between the two buckets of property in the event that the form of the business changed in the future.
After the business interests provision, the will provides that:
It is specifically the intent of this provision that [James] S. Simmons enjoy, after this bequest, thirty[-]four (34%) percent of the outstanding membership certificates, that Elery Stinson enjoy seventeen (17%) percent of the outstanding membership certificates, [and] that James E. Haege and Sharon Haege England each enjoy twenty[-]four[-]and[-]one[-]half (24.5%) percent of the outstanding member certificates.
The problem, of course, is that a sole proprietorship didn’t have any membership certificates. Thus, the siblings claimed that the business interests provision would apply only in the event that Haege reorganized the sole proprietorship as a separate legal entity with membership certificates, which Haege never did.
The Supreme Court rejected that argument. If Haege meant only to direct the disposition of nonexistent membership certificates, he could have done that and omitted nearly all of the “business interests” provision. That “business interests” provision must refer to something other than membership certificates because an ownership interest represented by membership certificates is “indisputably intangible property” but in the business interests provision, Haege refers to the distribution of “business interests, both tangible and intangible, real or personal, connected to” the business.
Taking the will as a whole, the “most natural and reasonable understanding” of the provisions is that Haege left his personal property amounting to his business interests in Traditional Fine Art – specifically including any membership interests he owned – to his brother, sister, and two employees, and Haege left all remaining personal property to his brother and sister alone.