What is the most vulnerable time for a new and growing business? The answer varies depending on whom you ask. One school of thought, however, brackets the six months before and after the death of the business owner as the riskiest period.
Considering that a business is often an owner’s most significant asset, continued smooth operation during this high-risk time deserves prioritizing – especially as the probate process is undertaken. Covering the bases rests in robust planning that anticipates and avoids probate hurdles.
Think and act ahead
Everyone knows it’s important to have a personal estate plan in place to avoid probate hassles. Having a will is the cornerstone of such plans but when it comes to business; don’t overestimate a will’s power.
Legally, a will expresses the creator’s desire for distributing assets. The probate court is obliged to use the document to guide decisions, but only if it is appropriately and legally executed. For the sake of business continuity, you want a separate legal roadmap so that operations continue smoothly throughout the probate process. To achieve that, it’s best to, in advance:
- Name who will run the business through the probate procedures
- Establish plans for maintaining business cash flow and family income
- Identify a power of attorney entrusted only with ushering business interests through probate
At ground level
In addition to the items above, there are some other keystones worth understanding.
- Buy-Sell agreements: These contracts are like prenuptial agreements, laying out terms for business interest holders about when they can sell their interests, to whom and at what price.
- Trusts: While highly touted and useful in providing probate protection, the wrong type of trust can hurt a business. You manage your business in a revocable trust. A trustee manages it if the business is in an irrevocable trust.
- Real estate: Business-owned real estate is treated as a business asset in probate. But property is often owned separately and rented to the business. In such cases, joint ownership with right of survivorship spelled out, a life estate or transfer on death deed, mitigates or eliminates probate hassles.
Finally, consider inventorying indirect business-related assets – such as patents or insurance policies – to be sure titling and beneficiary designations are established correctly.
In the end, a clear plan reduces potential damaging probate snarls.