Mark Pestronk
Q: I am an independent contractor of a large host agency. Being an aging baby boomer, I am concerned about my mortality and what will happen to my loyal clientele as well as the quite substantial commissions expected from bookings already made. Ideally I would like to bequeath my book of business to my daughter so she can take over. How can I arrange for that to happen?
A: My advice would depend on several factors, such as the terms of your existing independent contractor agreement with your host agency, whether your business is set up as a corporation, limited liability company (LLC) or just a sole proprietorship, and what your will and estate plan, if any, provide for.
To take the simplest example, if you are a sole proprietor and your IC agreement does not provide for any disposition of your client list, then this agreement would automatically terminate at your death, and the host can probably do whatever it wishes with your clients as well as your commissions receivable. Your heirs would get nothing unless you amend your agreement to make special provision for payment of outstanding commissions to them.
At the other end of the spectrum, if your IC agreement is between the host and your corporation or LLC, your death would not affect the validity of the agreement, as you are not a party to it, except perhaps as a guarantor. Therefore, your commissions would continue to be paid to your corporation or LLC, and its new owner under your will would have the right to take over your business.
In previous Legal Briefs columns, I have strongly advised ICs to set up their own corporations or LLCs in order to avoid having a taxing agency reclassify the host-IC relationship as one of employment. Now, besides the reclassification risk here is another reason to have a corporation or an LLC: Your book of business will stay in place, and your entity's ownership will pass to heirs of your choice.
However, many host-IC agreements provide that either party can terminate it on short notice such as 30 or 60 days. If your agreement has such a clause, then you need to try to change the agreement to provide that the host will not exercise its right to terminate in the event of your death and that the host will recognize your daughter as the new owner of your corporation or LLC.
If you have no one interested in taking over the business, another strategy would be to amend the agreement to require the host to buy your book of business from your heirs or your company after your death at a set percentage of revenues over a fixed number of years. Savvy hosts could even offer a standing plan such as this to all ICs who want it.
Regardless of the arrangements that you make with your host, be sure to consult with an estate planning attorney in your state before finalizing the arrangements.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at mark@pestronk.com.