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How Can Business Owners Avoid Probate?

People often relate the concept of probate with feelings of dread and anxiety. However, here at Lauren Richardson Law, PLLC, we urge business owners not to fear the probate process. If you want to avoid probate, preparation is key. Probate, defined as the legal process of establishing the validity of a will, is especially important to think about if you are a business owner. Without taking the proper precautions, your successors, business partners and family members will most likely have to go to probate court to resolve disputes regarding the validity of the will. However, most people would like to avoid probate court because delays and high expenses are extremely common.

You should plan and arrange your assets to avoid going through probate. Examples of these assets include, real estate, life insurance and bank accounts. The assets and documents that are required to go through probate should be structured and written clearly. This will make the probate process more efficient. You should set up a buy-sell agreement for your business if you have not already done so. A buy-sell agreement designates who inherits the business if the owner passes away.

Leaving equal ownership of a business to a business owner’s offspring often causes trouble and resentment. One child is likely to have more power in the business than another causing internal conflict within the family. “Equal ownership will mean equal dissatisfaction with your will," said Steve Parrish, Forbes contributing writer.

Parrish highlights five ways to avoid probate problems

  1. Trusts: Probate can be avoided altogether if you have your business titled correctly in a living/revocable trust. A living/revocable trust is flexible and can be changed at any time. It transfers your assets and business interests to your designated beneficiaries after your death. This is important for the business to remain running efficiently after your death. No probate process will be necessary with a living/revocable trust; however, it doesn’t prevent estate taxation You can also create an irrevocable trust to avoid probate. An irrevocable trust cannot be changed after its been signed. It gives control of your assets, including your business, to the trustee. This is less common than a living/revocable trust because business owners are less willing to give up control of their businesses.

  2. Real estate: Probate can be avoided if the business is a separate legal entity and owns property. The property then becomes an asset of the business. However, if the real estate is owned independently from the business, probate can be prevented by titling joint ownership with right of survivorship to the real estate.

  3. Personal property and insurance: Beneficiary designations must be titled properly to make the division and disposition of assets as efficient as possible.

  4. Wills, executors and powers of attorney: The will informs the court what you want to happen to your personal assets, including your business. The executor is the person you want to handle matters on your behalf. The business also needs to designate who will manage the business while the probate process is occurring. A power of attorney, in cases of incapacitation and disablement, indicates the trusted person who will express the business interest to probate.

  5. Business continuation: There needs to be a pre-set business continuation plan to organize the disposition of a business. An on-going management and business plan must be predetermined. A buy-sell agreement can exist to avoid a long probate process as well. However, there MUST be money to execute the business plan. If the probate judge orders a liquidation of the business to pay debts, the business will not be able to continue prospering. Therefore, a business plan must be predetermined and salaries, rent and debts must be paid.

The probate process may not be simple; however, there are precautions you can take to avoid the overall probate process as well as hurting your business. It is important know that understanding probate isn't just crucial for businesses. Individuals must also take the proper precautions to avoid probate court and high expenses.

In this blog post, the terms in red are the most important terms to know.

Lauren Richardson Law, PLLC, has dealt with numerous probate cases and is well-versed in how to best avoid the probate process. Because of Richardson’s experience as a probate lawyer, she can offer legal guidance and answer any questions you might have regarding how to avoid probate. Because people often have trouble understanding the probate process, we have decided to include probate as a topic in our future estate-planning seminar. We are currently in the preliminary stages of developing the seminar and would love your feedback about what other topics to address.


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