Article from Offit Kurman: Cultivating Your Estate Plan

4/13/17

By Marla Owczarek, Offit Kurman

As a savvy entrepreneur, you have chosen to enter the rapidly expanding cannabis industry. After successfully navigating the hurdles of property and business ownership and licensure regulations to establish yourself and become successful, you may wonder how you can pass your hard-earned legacy on to your heirs. The degree of legal complexity added to your estate planning considerations is largely dependent on whether you have a direct or ancillary connection to the actual sale of cannabis. Direct businesses are the most tightly regulated and include those that receive their revenue directly from the sale of cannabis – typically growers, processors and dispensaries. However, there are numerous businesses that provide goods and services to these direct businesses, which make them ancillary and therefore subject to significantly fewer regulations. As you likely suspect, owners involved in direct cannabusinesses have the greatest additional considerations in crafting their estate plan. This primer will touch on several issues most likely to impact direct owners.

The first step for the cannabusiness owner developing an estate plan is to remember the questions and concerns that arose during the establishment of your business and determine who is best qualified to handle those issues upon your demise. All the benefits, responsibilities, requirements and liabilities applicable to your ownership will pass to your designated successor. You must ensure that the new owner can satisfy all the legal criteria for ownership, such as passing a criminal background check. You will also need to know the regulatory hurdles for transferring your license and whether your heir’s state of residency impacts their ownership eligibility. If your assets are passing through your estate or a trust, note that in many states your executor or trustee assumes temporary ownership of your assets before they are transferred to your heir and therefore they may also be subject to the same rules and regulations.

After you have carefully vetted your desired beneficiary, you must consider the mechanism through which your cannabusiness assets will pass to your beneficiary. While the cannabusiness industry has flourished under some permissive state laws, the federal government still classifies cannabis as a Schedule I controlled substance which is illegal to manufacture, sell and process. This federal classification means that assets used in your business may be subject to seizure, and this exposure remains whether you hold the assets or they have passed to your heirs. Moreover, the extent to which a Court will enforce a succession plan relating to cannabusiness assets is unclear.

In light of these concerns and unresolved questions, to best protect your overall estate plan, you may consider segregating your cannabusiness assets from the rest of your estate. You may place the cannabis-related assets in a business entity or a trust and control subsequent transfers through the terms of the business operating agreement or trust. This partition would allow you to provide for the inheritance of the balance of your estate through a separate trust, or even just your Will. Under this structure, you insulate the balance of your estate plan from being tainted by potential problems that could arise as a result of your ownership of cannabusiness assets. It is important to note that despite any other illegality, the cannabis-related assets will have a value for estate valuation purposes and will be subject to tax thereon.

In summary, cannabusiness owners face significantly increased complexity in two aspects of their estate plan: first, applying the legal requirements for cannabusiness ownership to their chosen beneficiary; and second, drafting their plan to protect the inheritance of their non-cannabis-related assets from potential legal difficulties surrounding the inheritance of their cannabusiness assets. Estate plans are necessarily designed for future use, and due to rapidly evolving state law, it is critical that your estate plan be evaluated regularly. Partnering with a competent estate planner to address these concerns and craft your estate plan will protect your assets and provide for a smooth transfer upon your passing.

As an estate attorney, I enjoy assisting individuals to address inheritance goals and executors and families to navigate the administration of estate plans. Please let me know if I can assist you: mowczarek@offitkurman.com or 301-575-0396.

ABOUT MARLA OWCZAREK

mowczarek@offitkurman.com | 301.575.0396

Marla Stewart Owczarek is an associate in the firm’s Estate Administration and Estate Planning Group. Within her estate administration practice, Ms. Owczarek assists personal representatives with the gathering of estate and non-estate assets, determining proper inheritance of the assets, legal administration of the estate, and distribution of the assets. Ms. Owczarek works to resolve any estate administration concerns through collaborative processes. When no agreement can be reached, Ms. Owczarek represents her clients through litigation in the Orphans’ Courts. On behalf of her clients, Ms. Owczarek prepares necessary estate and fiduciary tax returns.

ABOUT OFFIT KURMAN

Offit Kurman is one of the fastest-growing, full-service law firms in the Mid-Atlantic region. With over 135 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well positioned to meet the needs of dynamic businesses and the people who own and operate them. Our eleven offices serve individual and corporate clients in the Virginia, Washington, DC, Maryland, Delaware, Pennsylvania, New Jersey, and New York City. At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and achieving their goals in an efficient manner. Trust, knowledge, confidence—in a partner, that’s perfect.

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