Individuals who hold a liquor license face a number of restrictions on their business operations. In the context of estate and business succession planning, these limitations add an extra burden when passing the business on to heirs due to additional restrictions which may come into play after the death of a license holder. If owners do not plan appropriately, their estate may face legal difficulties and high costs which could reduce their assets.

Under New York State liquor laws, a license from the State Liquor Authority (SLA) is required to manufacture or sell liquor at wholesale or retail. Although the license may issue to an LLC or other entity, the application for a liquor license requires disclosure of all owners of the business on whose behalf the license is sought.

When the holder of an interest in an alcohol-related business dies, it can raise concerns because of additional SLA restrictions on ownership which apply in cases of trust ownership. The death of a license holder (or an owner of an interest in a license holder) requires notification to the SLA by the filing of a Corporate Change Application. The Corporate Change must be approved by the SLA before license renewal can be processed.

However, as with any business, a trust is often utilized to provide the benefits of ownership to beneficiaries without requiring or allowing them a say in the operations of the business. A trust can be especially beneficial if the beneficiary is a minor or disabled, or if there are a large class of beneficiaries. In these situations, a trust allows a trustee to be named who can continue to maintain the profitability of the business for the beneficiaries.

Unfortunately, SLA imposes restrictions on trust ownership of license-holding businesses which are stricter than those imposed on individuals. Starting in 2015, SLA began requiring that trust applicants sign a stipulation. The terms of the stipulation provide:

• For a wholesale license, the trustees and beneficiaries cannot own an interest in any alcohol retailer.
• For a retail license, the trustees and beneficiaries cannot own an interest in a manufacturer or wholesaler, and also cannot own more than one retail license.

Accordingly, unlike with other types of companies, owners of alcohol-related businesses must consider whether their trustees or beneficiaries would run afoul of ownerships rules. When establishing an estate and business success plan, the terms of the trust and selection of trustees and beneficiaries should be evaluated in order to avoid problems administering the trust, which could require divestiture of assets, trust reformation, court approval and high administrative costs.

If you hold an ownership interest in an alcohol-related business, speak to a qualified attorney about your estate planning options.

Read more about our estate planning practice here.

This post does not constitute legal advice or establish an attorney-client relationship.