Understanding Business Assets and Probate
My father recently passed away. His only asset of any value was his small manufacturing business Corporation. Is his business subject to probate?
To answer your question I need to briefly answer a question that I am often asked, “What is probate”?
Probate is the legal process used to pass good title and distribute a deceased person’s assets. The business assets and probate process includes filing the will, if any, with the court along a petition to probate, appointing a personal representative, publishing notice to creditors, determining the validity of claims against the estate, filing the deceased’s tax returns and paying the debts of the deceased, and finally, at the conclusion of the probate proceeding, distributing assets to the rightful heirs or beneficiaries.
The next question that comes up and that is relevant is “what are probate assets”? Probate assets are assets that are solely in the decedent’s name that pass either through a will, or in the absence of a will, according to the state laws of intestacy. Assets that are not subject to probate, or non-probate assets, are accounts that are owned jointly with right of survivorship, assets held in a trust, IRAs that are pay on death, and life insurance and annuities that are payable on death.
Is a closely held corporation, such as your father’s Corporation, subject to probate? If the stock is held in his name alone and not jointly with another, and if he did not have a trust, then it is subject to probate. The reason that probate is necessary is that in order for the stock to be validly transferred to whomever inherits it, and for your father’s obligations to be satisfied or resolved, there must be a representative of the estate appointed who is able to transfer good title to the stock. In addition, it is important that somebody is in a position to continue to operate the business, if that is possible, to retain the business value and provide for ongoing succession.
The powers of the personal representative includes the powers to operate the decedent’s business during the entire probate process just as the decedent did. This is particularly important if the Corporation will have ongoing value, is going to be continued by your father’s heirs or beneficiaries, or is going to be sold to a third-party. It is important that those individuals have good, legal title to the stock of the Corporation, and all of the corporation’s holdings, just as your father did.