Are You Prepared?

Owning and operating a family business can be one of the most rewarding things a person can do. It can also be the ultimate form of freedom, allowing you to make your own decisions and operate in a way that aligns with your personal values, something that just isn’t reasonable when working for someone else.

When starting your business, independence was likely an important aspect of entrepreneurship, but providing for your family was number one.

But what happens when you pass away? Or, what should you do if you are involved in a family business and the owner passes away, leaving their business in probate?

Are you prepared for the worst?

What is Probate?

People who have lost someone close to them and were involved in the will process will likely know what probate is.

Probate is the formal legal process that gives recognition to a will and appoints the executor or personal representative who will administer the estate and distribute assets to the intended beneficiaries.

When someone is left navigating the probate process for a family-owned business, that usually means the plan for the succession of the company.

As a business owner, you would like to believe that your family and business partners would know your wishes regarding the succession of your business.

As an employee of a family business, you would like to believe that your best interests are protected in the event of a sudden loss.

But the fact of the matter is things sometimes unfold differently than we would like. That is why planning for probate is important!

What is Succession Planning?

Perhaps the biggest challenge facing a family business in probate is succession. According to Harvard Business Review, most family-owned businesses fail to remain family businesses past the second generation.

Successful succession is often years in the making. This allows employees, family or otherwise, to acclimate to working in an environment that will likely change.

There are many factors that may change how you look at probate. Are you planning on the probate process after you pass, or are you a non-owning family member, and you are concerned with how your life will change after probate? Is the family business a sole proprietorship, partnership, or an LLC or corporation?

Succession should be well thought out between the business’s owners and well-known by the non-owning members. This approach fosters transparency and trust. Fewer surprises can make everyone involved feel more comfortable during a very uncomfortable time of life.

Is Your Family Business an Asset?

When you are planning your estate, you will be asked to identify your assets and how you would like them divided and distributed after you pass. Your family-owned business is an asset, meaning you should properly define how you want it handled after you pass away and who will own the business.

What If You Feel Like You Were Next in the Line of Succession?

Perhaps you work for a family-owned business, either as a family member or someone who is not related to the owner. Maybe you have been there from the beginning, and the original owner has made comments or led you to believe you would be taking over operations after they pass.

But then that terrible day comes, and someone assumes control of the business. That can leave a bad taste in your mouth, or worse, result in a loss of morale among the remaining owners and employees.

This is why estate planning is so important: less surprises, less fighting, and more honoring the wishes of the deceased.

How Should You Plan for Probate?

Planning for probate is important for ensuring your business is cared for in a way that meets or exceeds your wishes. The last thing you want is your family or employees fighting after you pass away or your employees leaving because they are surprised by the new owners.

If you are in a partnership and should die intestate, your partnership agreement should say what happens when a partner passes away. This can involve the remaining partner(s) simply absorbing your share of the business or the remaining partner(s) buying your interest in the partnership, with the proceeds going to your beneficiaries.

This means that part of probate planning should involve valuing your business. If your business is part of your estate, it must be valued for the sake of probate administration and taxation. Also, it is so your beneficiaries know what they are inheriting.

Planning for succession should be a part of your estate planning. Your wishes for who should take over your business should be well-defined and indisputable. You can include stipulations regarding succession, such as requiring the business to remain in the family or to be sold to the new owner of your choice should your family not wish to inherit responsibility for the business after you pass.

Do You Need an Estate Lawyer?

Planning your estate certainly can be done with a verbal agreement and a handshake and not have a lawyer involved. But, a verbal agreement and a handshake is rarely enforceable, and failing to include an attorney to make sure your business actually ends up in the hands of those you wish to have it can end up having severe consequences including someone inheriting it that you did not foresee nor want to do so.

Instead, you can rest with peace of mind knowing that your wishes are being respected, your business is remaining in your family or to your designated successor, and it is operated in a way that abides by your morals and wishes.

Working with Kendal Law Group PC, you can be certain that your best wishes are honored. Find out how we can help you with a free consultation. Or give us a call at 248-609-1718 to find out why working with Kendal Law Group PC is the best option for you and your family.