The COVID-19 pandemic brought many challenges to my practice. One of the most challenging was advising clients who had lost a loved one who owned and operated a business and helping them navigate the difficulties these situations proposed. The most frustrating was when these estates were not based on a revocable living trust and were required to go through probate. This becomes particularly challenging and expensive when business interests are involved. It is further complicated because, in many situations, the business stagnates or sometimes goes under before the long, costly probate process can conclude. Thankfully, this can be easily avoided by utilizing a revocable living trust, irrevocable trust, or asset protection trust and carefully negotiating the operating agreement for the LLC or the bylaws for a corporation.
Even people who think their business is too small to warrant utilizing a trust should carefully consider the dangers that probate can cause to the business and its legacy. Probate court can be a nightmare scenario for small business owners in several key ways:
Probate Can Be A Time-Consuming Process
One of the most damaging aspects of probate for small business owners in Tallahassee is how long probate can take. The process routinely takes upwards of a year to conclude. Unfortunately, once you are in probate court, you are on the court's timeline, which does not always align with your business needs. During probate, decisions crucial to the business's survival might be stalled, leading to potential lost opportunities, revenue or worse. Simply put, most businesses cannot afford the time probate takes, which can cripple the business.
Cost of Probate
Probate isn't just time-consuming; it's costly. With attorney fees, court costs, and other related expenses, the financial burden can strain an already vulnerable business. For example, Section 733.6171 of the Florida Statutes provides the compensation structure guidelines for an attorney representing an estate in probate. While these fees don't need to be followed (the parties can agree on a higher or lower fee structure), many attorneys follow the rate outlined in the statute. The size and complexity of the estate dictate the terms, but a typical example of attorney fees under these guidelines, such as an estate with $500,000 in assets, would amount to $15,000: $3,000 for the first $100,000 and $12,000 for the remainder.
Additionally, in probate, a business's assets may be used to settle outstanding debts or creditor claims before beneficiaries receive what is owed, and jeopardizing the business's financial stability.
Public Scrutiny
Most business owners do not want their business aired in public records. In Florida, Probate proceedings are generally public records. Anyone with an internet connection can access this sensitive information about the business (including your competitors), which can harm the business's reputation and its competitive edge against competition. Utilizing a trust-based estate plan can avoid the public scrutiny of probate.
Operational Paralysis
Until probate is resolved, the business is sometimes left in limbo. Critical decisions about daily operations, financial transactions, or strategic planning are often delayed and often derail growth, profitability and the business's general operations.
For small business owners, probate can be a crippling process for your business. Employing proactive estate planning now, setting up a trust-based estate plan, evaluating the business's operating agreement, and deploying a clear succession plan can often avoid many of the pitfalls of probate and deliver small business owners the legacy their business deserves. Please speak with our experienced Tallahassee Estate Planning Lawyer today to discuss strategies you can utilize to secure the legacy of your small business.
