If you are a small business owner in Florida, you need to have an estate plan. In the probate process, the treatment and distribution of an ownership interest in a small business can be complex and expensive. Depending on the structure and business type, the business may need to be shut down by the personal representative during the probate case. As a result, we always recommend that small business owners work with a Florida estate planning attorney to create an estate plan.
What happens in probate when the decedent owns a small business?
When someone who owns a small business passes away, their decision to use a business entity (like an LLC or corporation) has a tremendous effect on how the personal representative must proceed.
If there is no business entity, which means the decedent was running the business as a sole proprietorship, then the continuation of the business will be in the hands of the personal representative. Under section 733.612(22), Florida Statutes, a personal representative may only operate a decedent’s sole proprietorship for four months in probate. If the personal representative decides that the business needs to be operated for an extended period of time, the personal representative can request that the court approve additional time for the operation of the business.
If the business was incorporated, the business can pass in probate like any other asset. The business remains intact and the ownership interest in the business is passed to the heirs or beneficiaries according to the will, if the decedent had one, and it was filed, or according to the intestacy statute if there was no will.
The major drawback to having a small business go through probate is that it adds complexity to the probate case. If your business has few employees, or none at all, this means that the personal representative will need to run it. The result is higher attorney’s fees, and an increased time that the case is stuck in probate.
How can an estate plan help carry out my wishes for my small business?
An estate plan, specifically a revocable trust, can streamline the process of transferring your business to the person or people you want to give it to, and will make sure that your business continues after your death. If you would rather your small business be sold, a revocable trust can allow for the sale of your business as well.
Here’s how a revocable trust will help with transferring your small business. You will put your ownership interest in the business into the revocable trust. In your trust, you will appoint a trustee and successor trustee. Typically the initial trustee in a revocable trust is the grantor, or in this example the small business owner. After you pass away, or even if you become incapacitated, a successor trustee will take over administration of the trust, and manage or distribute the assets according to the instructions in the trust document.
There are several benefits of using a revocable trust as part of your estate plan as a small business owner. First, the revocable trust continues to allow for you to be in control of your assets. As stated above, the grantor of a revocable trust is usually the initial trustee. Therefore, while you are alive, you will still have complete control over the assets in the trust. Furthermore, the trust is revocable, so if for some reason you want to revoke the trust, or terminate it, you have that option, as long as you are still living.
Second, a revocable trust avoids probate. Assets in trusts do not pass through probate in Florida. The assets of the trust are separate from probate and the successor trustee will be the person in charge of distributing the assets of the trust to the beneficiaries. If an ownership interest in a small business is party of a trust, the successor trustee will be able to run the business, transfer the ownership interest, or even sell the business if that is what the grantor of the trust wanted to do.
Third, since the trust avoids probate, the transfer of the assets of the trust can be transferred more quickly than in a probate case. In probate, there are notice requirements and interested persons can object to certain actions in administration, slowing the process. In comparison, a revocable trust is not in probate and therefore, the notice requirements are less stringent and the trustee is free to act, as long as the trustee acts within the parameters set out by the trust document. The end result is that your beneficiaries get their inheritance faster.
Finally, as a side effect of avoiding probate, the administration of a revocable trust is typically less expensive than probating a probate estate. A revocable trust one of those situations where it costs more up front to hire an attorney to draft the document, but there are significant cost savings in the future when probate is avoided. For example, a revocable trust may cost $3,500 for an attorney to draft, which is roughly the cost to probate an estate greater than $75,000 in non-exempt assets, depending on the attorney. If you have more than $100,000 in non-exempt assets, which is usually everything you own except your homestead and exempt personal property, a revocable trust will make more economic sense. Therefore, if you have a small business that is worth greater than $100,000, you should talk to an attorney to see if a revocable trust will work for you.
Have questions about revocable trusts for small business owners?
If you have questions about revocable trusts for small business owners, or if you are interested in doing an estate plan, contact us today to schedule a free consultation. During our consultation, one of our attorneys will answer any questions you may have about estate planning, discuss your estate planning goals, and explain the process to you. We will explain some of the mistakes people make with their estate plans, such as not transferring property into a trust, and help you to avoid them. We always make sure that your estate plan will best reflect your estate planning goals.