In previous blog articles, we have mentioned the importance of estate planning for business owners. We have discussed the options of using a Business Power of Attorney to handle business operations during incapacity and Transfer-on-Death designations to transfer business ownership interests outside of probate. While these approaches should be considered in every estate plan involving a business, they are not always appropriate. In particular, these and similar estate planning techniques, along with techniques that involve setting up a revocable trust, could have unintended consequences for a business that is certified as a Women Business Enterprise (WBE) or that is planning to become WBE-certified in the future.
A business can be certified as a WBE by state, local and Federal governments and by certifying organizations such as the Women’s Business Enterprise National Council (WBENC). While the WBE certification requirements can vary depending on the agency, they are generally similar including a requirement that at least 51% of the WBE be owned and controlled by a woman and that the day-to-day operations of the WBE be managed by a woman.
Certifying agencies will fully vet the WBE and be especially thorough in their investigation of the WBE’s ownership and control, which is a threshold consideration in the certification process. They will review organizational, governance, financial and tax documents and also conduct in-depth due diligence on the realities of the WBE’s decision-making, management and financial structure.
With respect to the requirement that at least 51% of the WBE be owned by a woman, careful attention is required where, for estate planning purposes, ownership of the WBE interest is held in a revocable trust. In these cases, WBE-certifying agencies differ in their requirements.
For example, some state and local governments will not recognize an ownership interest that is held in a revocable trust unless the woman business owner is the grantor, the trustee and the sole present beneficiary of the trust. On the other hand, certain third-party certifying agencies treat ownership by a revocable trust as the functional equivalent of ownership by a woman if:
- The grantor or grantors of the trust are female;
- If any trust beneficiary is a male who is currently eligible to receive distributions of income or principal from the trust, or is otherwise eligible to receive a “present benefit” from the trust, the female beneficiaries of the trust represent at least 51% of the beneficiary group; and
- The trustee of the trust is female or a financial institution.
It is critical that a WBE understand how these differences impact eligibility for the desired certification.
We mentioned earlier that, in addition to majority ownership, a woman must also control and manage the WBE in order to qualify for certification. While not obvious perhaps, the design of an estate plan has implications on this requirement as well. Imagine the common scenario where, as part of her overall estate plan, a woman business owner signs a Power of Attorney giving her husband broad authority to make decisions on her behalf in the event she becomes incapacitated. If the Power of Attorney does not expressly withhold the husband’s authority to manage the WBE, the WBE’s certification is potentially at risk because, generally speaking, a woman must control and manage the WBE at the time of certification and into the future.
An analysis of these and other factors is nuanced and can be complicated, and any hiccup can significantly delay WBE certification or disqualify a WBE from certification altogether. Being mindful of these and other certification requirements is a must when designing an estate plan that involves an interest in a WBE. Could your estate plan ruin your WBE certification?