Businesses are one of the most challenging probate assets to deal with. This is particularly true for businesses that are unique or require particular skills to operate.
Business owners may plan in advance for the orderly transfer of their business interests in the event of their demise. This is often handled by way of a buy-sell agreement or similar terms included in the business entity agreements. For example, with partnerships and limited liability companies, the partnership or company agreement may include these terms.
It is common for these agreements to say that the other business partners are to receive or have the option to buy the decedent’s business interest. They may also include life insurance purchased so that the proceeds can be used to fund the purchase of the business interest from the decedent or his estate.
The would-be personal representative should locate the business documents–if any–and determine whether they include buy-sell type of agreements. The personal representative should also check the decedent’s will and/or trust documents to determine whether they dispose of or address the business. If the will disposes of the business, the personal representative may only have to see to it that the business is sold.
If these documents do not dispose of the business, the personal representative has to determine whether they need to have a role in operating the business during the probate process. The general rule is that the personal representative is to operate the business during the probate process.
If the personal representative is not familiar with the business or is not comfortable operating the business, they have several options to consider. This includes whether to refuse to serve as the personal representative, agree to serve but do so in a dependent (not independent) administration, or serve in an independent administration but have the estate hire another experienced party to operate the business.
Each of these options can expose the personal representative to liability. This is particularly true if the business profits suffer or decline during the probate process.
The personal representative may also find it difficult to obtain a bond for these probates. Bond companies inquire whether the estate owns an interest in an operating business. This can make the bond much more expensive.
Having considered these specific types of property, we can focus on how to manage and dispose of the decedent’s property. This is our next topic. Click here to continue reading. >>>>
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