Here’s What Business Owners Can Do to Avoid Probate Problems
By: Barry E. Haimo, Esq.
March 11, 2021
Part of the satisfaction in building a business is the knowledge that it will be there for your loved ones after you’re gone. A solid business can help support generation after generation.
You may believe that passing on your business is as simple as a paragraph in your will. But what you might not know is that a will doesn’t save surviving family and business partners from probate.
What’s probate? In simplest terms, court proceedings that cement who gets what in your estate and your business.
Unfortunately, going through probate is anything but simple. Years can be spent in probate court clarifying and confirming details of your will.
The good news is that you can avoid costly and taxing probate problems with a little forethought. Below are just a few examples.
Establish a Living Trust
While a will distributes your assets upon death, a living trust allows you to distribute your assets while you’re still around. The trust is already standing on its own legs, so to speak, when you pass away. This renders probate unnecessary, because your business essentially belongs to the trust.
Of course, you will want to carefully consider who you’re naming as trustee in your stead. This trustee will transfer assets to your beneficiaries according to your written wishes, all while avoiding probate.
This may seem like an obvious step, but business partners or family members working for a business may not think to make themselves official joint owners. Joint ownership simplifies the legal heritance of a business. Since ownership was already shared, it continues with the surviving owner(s). This means you can skip probate.
Many titles and bank accounts also allow you to name an automatic beneficiary to circumvent probate. You can ask for a TOD (“Transfer On Death”) form to execute this.
Business Continuation Plan
On top of these steps, you can create a larger business continuation plan. This plan should cover as many details as possible so that few questions remain after you’ve passed away.
It may entail a buy-sell agreement, the establishment of joint ownership as mentioned above, a gift of stock, or other arrangements. You’ll want to outline who will manage the company, plus a budget to pay off debts and execute your plan.
While this may not allow the new business owners to skip probate entirely, getting specific can streamline the process. The budgeting step is crucial, as a probate judge may order the liquidation of a business to pay off debts if the funds don’t balance out.
Seek Legal Help
We’re taught that “a stitch in time saves nine,” and that lesson applies to business estate planning, too. Invest in these up-front strategies that will keep probate court brief and uncomplicated — or even allow you to skip it altogether.
Get in touch with us at Haimo Law to save your business and loved ones from future headaches. They will thank you for both your legacy and your foresight.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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