Estate Settlement of Corporate Benefits
Assume that Peter joins ABC Company as a managing director. The parties to the employment contract are between Peter and ABC Company. Therefore, if Peter dies, it is the legal representative of Peter’s estate that deals with ABC Company to resolve outstanding corporate benefits issues. ABC Company has no legal obligation to deal with the family members or next of kin of Peter. This is an important point, but is often overlooked, resulting in unnecessary and uninformed lawsuits.
Corporate benefits come in all shapes and sizes, and when an employee dies, these benefits could be substantial and usually form part of the deceased person’s estate. Therefore, there is a meaningful need for estate settlement to realise these outstanding benefits.
Legal Representative of the Deceased Employee
The rightful person to deal with the company should be the legal representative (administrator or executor) of the deceased. It is common that the surviving spouse goes to the company to settle the matter. Unless it is out of good will, the company has the right to decline the dealing, until the letter of administration or grant of probate is issued, giving the surviving spouse the legal right as administrator or executor of the estate.
Corporate Benefits No.1 – Outstanding Salary
This is more than a benefit; this is a contractual right of the employee. Suppose Peter dies on the 15th of the month. His salary of the month from 1st to 15th of the month still belongs to him, or his estate. A group insurance death benefit should not be used to satisfy this outstanding salary, unless otherwise stated in the employee contract. This is because there are income tax implications.
Outstanding salary is subjected to income tax. Corporate group insurance death benefit is taxable if it is treated as additional remuneration; it is not taxable if it is received as death gratuity or as consolidated compensation for death or injuries (which is exempt under the law).
Corporate Benefits No. 2 – Accrued Bonus
Some bonuses are accrued and contractual, especially if the employee is remunerated on sales volume. The bonuses accrued to date should be payable to the employee’s estate unless otherwise stated in the employment contract.
Corporate Benefits No. 3 – Profit Sharing Scheme
It is not uncommon that a profit sharing scheme is given as an employee benefit, especially to senior management. For example, Peter, being a managing director of the company, is asked to be the guarantor for the company working capital loan; in return, Peter is given 20% of net profit of company. The profit sharing payable should form part of Peter’s estate.
Corporate Benefits No. 4 – Stock Options
This is common among employees working in listed companies. Employee stock options allow the employee to exercise the option to purchase the shares of the company at an agreed price, usually at a discount from the market price of share. These options could form part of the employee’s estate, unless otherwise stated by the contract.
Corporate Benefits No. 5 – Group Insurance
Estate settlement for group insurance is extensively covered as a topic in this website.
Corporate Liabilities No. 1 – Personal Guarantor
Besides settling the benefits, the legal representative should also inquire whether the deceased employee has any outstanding liabilities with the company. One important area is the personal guarantor. This is not uncommon especially if the employee is in senior management and holding directorship with the company. A personal guarantor is usually required by banks as a condition for a business loan. The personal guarantor obligation could extend to the deceased person’s estate.
Therefore, steps should be taken to discharge the deceased person’s estate from this personal guarantor’s responsibility.
Corporate liabilities No. 2 – Return and Discharge Assets held in trust for company
There are instances where a company gives a private registered car to its managing director (as part of his/her employee benefits), but it is to be held in trust for the company. When the employee dies, it is appropriate to return the car to the company and discharge the estate from any liability incurred under this asset (for example, road tax, insurance, outstanding car loan etc.).