In this blog, we’re going to explore a crucial topic that often gets overlooked by business owners: what happens to your business interests when you pass away? Whether you own a corporation, an LLC, a partnership, or a sole proprietorship, it’s important to understand the implications for your business upon your death.

Understanding Probate for Business Interests:
First and foremost, it’s a common misconception that only residential properties, investment properties, and cash assets go through probate. In reality, your business interests are also subject to probate proceedings. This means that if you haven’t properly planned for the transfer of your business ownership, it could end up tied up in court proceedings, causing delays and complications for your beneficiaries.

 

What happens to different types of business entities at owner’s death:

 

Corporations:
If you own a corporation, the shares of that corporation are considered your assets. The corporation is a separate legal entity that lives on long after the underlying owners have passed away. The ownership shares are owned by individuals. If these shares are solely in your name and not held in a trust, they will go through probate upon your death.

Limited Liability Companies (LLCs):
Similar to corporations, if you’re a member (owner) of an LLC and your ownership interest is not held in a trust, it will go through probate. Your membership interest in the LLC will need to be addressed through the probate process, potentially causing delays and complications for your beneficiaries.

Partnerships:
Whether you’re in a general partnership or a limited partnership, your ownership interest will also go through probate. That is if it’s not held in a trust. This includes any partnership agreements or membership interests tied to your name individually.

Sole Proprietorships:

If you operate as a sole proprietor, your entire business is tied to your individual identity. Without proper estate planning, your business assets could end up in probate, creating challenges for your heirs to manage or sell the business.

 

 

Exceptions and Thresholds:
While most business interests will go through probate, there are exceptions based on the value of the business. In California, for example, if the value of the business interest falls below a certain threshold (currently $188,000), it may be possible to wind down the business without court intervention (depending on other assets held by the decedent). However, this requires careful consideration and planning.

Protecting Your Business Interests:
To avoid the complexities of probate and ensure a smooth transition of your business interests, it’s crucial to engage in proper estate planning. This includes:

  • Establishing a trust: Transfer your business interests into a trust to avoid probate. Make sure you provide clear instructions for the distribution of assets.
  • Reviewing your existing trust: If you already have a trust in place, ensure that your business interests are included and properly titled within the trust document.
  • Seeking professional guidance: Consult with a legal expert who specializes in estate planning and business law. They can help you navigate the intricacies of transferring business ownership. This will ensure that your wishes are accurately reflected in your estate plan.

As a business owner, it’s essential to recognize the importance of planning for the future of your business interests. By understanding the implications of probate and taking proactive steps to protect your assets. You can provide peace of mind for yourself and your loved ones. Don’t wait until it’s too late start planning today.