Do you have a plan for what happens to your freelance business when you die?
As a freelancer, your business is … you. You might have an LLC and a business bank account. You probably have contracts, clients, invoices, subscriptions, and tax records. Maybe you even have a website that generates income, but ultimately, you are the business.
That's great when you're building a career around your expertise. It can create a problem, though, if something happens to you. If you die unexpectedly, someone else may suddenly need to figure out how to access your accounts, contact your clients, collect money you're owed, pay outstanding bills, file taxes, and decide what to do with whatever remains of the business. Without advance planning, that can become an enormous burden for the people you leave behind.
Here's what can happen to a freelance business when its owner dies, and what you can do now to make the transition easier.
Does your freelance business automatically close when you die?
What happens depends partly on how you've structured the business. A sole proprietorship generally doesn't exist independently of its owner in the same way a separate legal entity does. When the owner dies, the business effectively stops operating, although the estate may still need to settle its affairs.
An LLC can be more complicated. State law, your operating agreement, and whether the LLC has other members can affect what happens to the company and your ownership interest. Either way, death doesn't magically erase the administrative side of your business. Someone may still need to collect outstanding payments, deal with contracts, pay bills, cancel services, handle business assets, and file applicable tax returns.
That's why freelancers should think about what I call a business shutdown plan. You're essentially leaving instructions that answer one question:
If I can't run this business anymore, what does someone else need to know?
Make a list of your clients and contracts
Your spouse, executor, or another trusted person may know you're a freelancer without knowing much about how your business actually works. They might not know that you have an article due next Tuesday, a consulting contract that pays you every month, or an invoice that's been outstanding for six weeks.
Create a basic list containing:
- Your active clients
- Primary contacts
- Where contracts are stored
- Current projects
- Outstanding invoices
- Work you've completed but haven't invoiced
- Recurring contracts or retainers
- Deposits or advance payments you've received
You don't necessarily need to update this document every time you accept an assignment. The goal is to give someone enough information to reconstruct what's happening. Pointing them toward your project-management system, accounting software, or other records can also help.
Decide how someone can access your digital business
For many freelancers, the most valuable business assets aren't sitting in an office. They're digital.
Your business might depend on access to your:
- Website
- Domain registration
- Web hosting
- Cloud storage
- Accounting and invoicing software
- Payment processors
- Social media accounts
- Client-management software
- Business bank accounts
- Subscription services
- Intellectual property
That creates an important estate-planning problem. Your family may know these accounts exist without knowing how to access them. A password manager can help you organize login information, but don't simply give everyone your master password. Look into the emergency-access or legacy features available through the services you use and consider how they fit into your estate plan.
It's also important to understand that having someone's password doesn't necessarily give them legal authority to access an account. Contracts, state laws, and estate documents can govern digital assets. Talk to an estate-planning attorney about giving your fiduciary appropriate authority to manage your digital assets.
Make sure someone knows how you get paid
Freelancers can have money scattered everywhere. You might have payments arriving through direct deposit, ACH transfers, checks, PayPal, Stripe, or another platform. Some clients might pay immediately, while others pay 30, 45, or even 60 days after receiving an invoice.
If you die after completing work but before getting paid, that money doesn't necessarily disappear. Amounts legitimately owed to your business may become assets that your estate can collect.
Make it easy for someone to determine:
- Who owes you money
- How much you're owed
- Whether you've sent an invoice
- When payment is expected
- Where payments normally arrive
Good bookkeeping becomes surprisingly important here. Your beautifully organized accounting system might seem unnecessary when you're alive and know exactly what's going on. It becomes much more valuable when someone else has to figure out your finances.
Think about unfinished work
Suppose a client paid you a $2,000 deposit for a project, and you die before completing it. What happens to the deposit?
Or maybe you've finished most of a project but haven't delivered the final product. Does the client owe your estate anything?
The answer may depend on your contract and the circumstances. Your executor might need to determine whether the client should receive a refund, whether payment is still owed for completed work, or whether another professional can finish the project. Clear contracts can make these situations easier to resolve.
Create instructions for contacting clients
Most of us probably don't want our spouse digging through our inbox trying to figure out who needs to know we've died. You can make this easier. Identify someone who can notify clients or give your executor instructions about who should handle business communications.
Create a basic template that says you've died and provides contact information for the person handling your business affairs. Freelancers with longstanding client relationships should also identify another freelancer who can take over certain projects.
This doesn't have to be a formal succession plan. Sometimes it's simply helpful to say, “If I die, contact these three people. They'll know what to do.”
Decide what should happen to your website
Your website can be easy to overlook, especially if it's been online for years. But a website can have real value:
- Advertising revenue
- Affiliate income
- Product sales
- Course sales
- Newsletter subscriptions
- Licensing opportunities
- Leads for other businesses
Your domain name itself might also have value.
Instead of letting everything expire automatically, decide what you want to happen. Maybe you want your family to keep the site running because it produces passive income. Perhaps you want someone to archive it. Or you might want to sell the domain and content. If your website contains a substantial body of work, there may also be intellectual property considerations.
Don't forget your intellectual property
Freelancers create things. Writers create articles and books. Photographers create images. Designers create graphics. Developers create code. Course creators produce videos and educational materials.
Depending on your contracts, you may retain copyrights or other intellectual property rights in some of that work. Copyrights can survive long after the creator dies, which means your intellectual property may become part of your estate. Consider whether you own assets that could continue generating royalties, licensing fees, or other income.
Your estate plan can specify who receives those rights and, where appropriate, who manages them. This becomes particularly important if you've built a large archive of creative work over a long freelance career.
What happens to your business debt?
Your death doesn't necessarily erase business debts. Your estate may need to deal with outstanding credit cards, loans, vendor bills, taxes, refunds, and other obligations.
The situation can become more complicated if you've personally guaranteed business debt. This is another reason to keep business and personal finances separate. Dedicated business accounts and clear records can make it easier for your executor to determine which expenses and assets belong to the business. If you have significant business debt, discuss what would happen to it with an attorney and accountant.
Life insurance can also be part of the plan if your death would leave financial obligations that could affect your family.
Taxes don't end when you die
Unfortunately, death doesn't eliminate your relationship with the IRS. Your executor may need to deal with your final individual income tax return as well as tax filings related to your business or estate. Depending on how your business is structured, you may need additional federal or state filings.
Good records can make this process much easier. Keep tax returns, income records, deductible expense information, estimated tax payment records, and other important documents somewhere your executor can find them.
You don't need to turn your spouse into your accountant. You just need to make sure your spouse or executor knows who your accountant is and where the records are.
Build a freelance business emergency file
You don't need a 100-page business continuity manual. For a typical freelancer, a relatively simple emergency file can provide a useful roadmap.
Include information about:
- Business structure: Explain whether you're a sole proprietor, LLC, S corporation, partnership, or another type of entity.
- Key professionals: List your accountant, attorney, financial planner, insurance agent, and other relevant contacts.
- Clients: Explain where someone can find your current client and contract information.
- Money: Identify your business bank accounts, payment processors, accounting system, outstanding invoices, and major debts.
- Digital assets: Explain how your executor can locate information about websites, domains, email accounts, cloud storage, and other important services.
- Recurring expenses: List software, hosting, memberships, insurance, and subscriptions that may need canceling.
- Intellectual property: Identify copyrights, royalties, books, courses, websites, or other assets that might retain value.
- Instructions: Explain what you'd ideally like someone to do with the business.
Tell the appropriate person where this information is stored. The world's greatest emergency plan isn't particularly useful if nobody knows it exists.
Include your freelance business in your estate planning
Freelancing can feel informal, particularly if you're a one-person operation working from home.
But a business you've spent years building is still a financial asset, and it creates financial obligations. Your will, powers of attorney, digital asset provisions, insurance coverage, and other estate-planning documents should account for the fact that you own a business. An estate-planning attorney can help you determine what documents you need based on your business structure and state law.
You should also revisit your plan periodically. A freelance business earning $15,000 per year on the side is very different from one generating six figures, supporting your family, employing contractors, or producing valuable intellectual property. Your planning should change as your business does.
Make things easier for the people you leave behind
When you work for an employer, there's an organization that can shut down your email, reassign your projects, contact customers, and handle payroll and administrative details. When you're self-employed, you're the organization. If you die, someone else suddenly inherits the administrative mess.
You can't eliminate all of that work. But you can leave good records, clear instructions, appropriate legal documents, and enough financial resources to make the process manageable.
