Anyone with zero knowledge about the law will ask what probate is. Probate is a legal procedure that validates a deceased’s will and ensures fair distribution of assets, including business stocks and accounts receivable, to the rightful beneficiaries.
Naturally, probate proceedings are overwhelming. Add the element of the deceased being a business owner, and probate becomes complex. And while estate planning can simplify probate, families still face challenges. Before we explore probate challenges and how to navigate them, let’s get an overview of how probate works for business assets.
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What happens to a business after the owner passes away? The future of any business after the death of the owner depends on two factors:
1. The business structure
For instance, if the deceased was a sole proprietor, their business assets are considered personal. Ideally, the business assets move to their estate, distributed to the rightful heirs according to the terms of inheritance laws and wills.
In this case, the deceased owned a limited liability company (LLC), which means they had shares or stocks in the business. These assets form part of their estate and can be sold or distributed between named beneficiaries during probate.
If the deceased’s business legal entity was a partnership, a formal agreement signed before their death will determine whether or not the business will continue. This agreement also allows the sale or acquisition of business interests after death.
2. Did the owner create a succession plan?
A business structure outlines how an organization is governed even after the owner’s death. However, every entrepreneur should consider creating a business succession plan to ensure their enterprise passes on to the suitable successors.
According to Hays Firm, the days after a loved one dies can be stressful, given families must estimate the decedent’s estate value, pay outstanding taxes, and settle debts. On top of these tasks, challenges can arise, creating delays in the execution of the will or succession plan. An experienced probate lawyer at haysfirm.com can help determine whether probate is necessary. If so, they will help you overcome the obstacles that often arise during proceedings. Here are common probate challenges.
1. Lack of Deceased’s Will
A survey by Caring.com reveals that only 34% of the population in the US have a will. As a result, 66% leave what happens to their assets in case of disability or death in the hands of others or the state. In simple terms, the court determines the beneficiaries of an estate if the over died intestate or without a will.
From a legal perspective, the closest family member of the decedent becomes the estate administrator. This individual could be:
- children above 18 years
- aunts or uncles
Note that unmarried partners or cohabitants are not entitled to administer a deceased’s estate. One of the best ways to navigate this hurdle is by applying with the probate court to be appointed as the estate administrator.
Nonetheless, the court still determines who gets what. Generally, registered spouses receive the largest share, followed by the deceased’s children. If there are no children, the spouse receives the entire estate. Distant relatives only get a percentage of the estate if no surviving spouse or children exist. If there are no surviving relatives, the state takes over the estate.
2. Valuation Disputes
A personal representative of the deceased or estate administrator has a legal obligation to disclose the estate’s value and pay its taxes. In most cases, out of ignorance, estate administrators fail to evaluate the estate value, creating room for tax liabilities. Proper estate value assessment, including business assets, is the key to avoiding valuation disputes. Skilled attorneys recommend taking inventory of the estate, paying the required taxes, and settling debts with creditors.
3. Conflicts Among Beneficiaries
It is common for estate heirs and beneficiaries to get into conflicts because they doubt the will’s validity. For example, beneficiaries could contest a will or business succession plan because the deceased did not sign it on their free will due to mental incapacity or pressure. Heirs might also file a petition to stop the execution of a will if they feel the shares they have received are lower than the decedent had intended. When such issues arise, having an attorney is crucial to help you present your case according to state laws.
4. Problems with the Executor
Another common issue during probate is allegations of improper settlement of the estate by the administrator. For instance, an executor could fail to distribute the estate as written in the will or overlook debt settlement. In such a situation, beneficiaries, through their lawyers, could file a claim for the replacement of the executor.
Sometimes, executors could reject their role, prompting beneficiaries to seek legal help to find someone to manage the estate. Such circumstances reaffirm the importance of appointing more than one estate administrator when writing family trusts and business succession planning.
While probate is essential in confirming the authenticity of a will or business succession plan, the process can be tiresome. Sometimes, probate becomes too challenging due to conflicts among family members, estate valuation disputes, and problems with executors failing to perform their duties correctly. Hiring a probate attorney is always best to ensure you navigate these challenges successfully.