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You hear the term probate all the time, but what does it mean? It describes the state court process of dealing with someone’s estate after their death. The process includes validating their will and distributing any assets. Probate can have significant consequences for family businesses, particularly in New York and Florida. Without proper planning, the probate process can disrupt business operations, create family disputes, and use up valuable resources.
The Law Office of Angela Siegel has been helping clients in New York and Florida with their estate planning needs for many years. Here is an overview of how probate impacts family businesses in these states and strategies to protect your legacy.
How Does Probate Work for Family Businesses?
When a business owner passes away, their ownership interest typically becomes part of their estate. If no advanced planning has been clearly set out, the probate court determines how these interests are transferred to heirs. This process can be time-consuming and costly, affecting the business’s stability.
Key Probate Challenges for Family Businesses:
- Delay in Asset Distribution: Probate can take months or even years, leaving the business in limbo.
- Increased Costs: Probate requires Court fees, attorney fees, and administrative expenses that can lower the value of the estate.
- Disputes Among Heirs: Conflicts may arise over who should manage or own the business.
- Loss of Confidentiality: Probate proceedings are public, exposing sensitive business information.
State-Specific Challenges: New York vs. Florida
New York Probate Challenges
- Complex Probate Process: New York has a detailed and often lengthy probate process, especially for large or contested estates.
- High Taxes: New York imposes a state estate tax on estates exceeding $6.58 million (2024), which could impact business assets.
Florida Probate Challenges
- Out-of-State Owners: Florida’s probate laws require the appointment of a local personal representative, complicating matters for family members living outside the state.
- Homestead Property Rules: If a family business includes real estate, Florida’s homestead property rules may further complicate asset distribution.
Strategies to Protect Family Businesses from Probate
1. Establish a Revocable Living Trust
A revocable living trust is a useful tool because it allows business assets to avoid probate entirely. Ownership of the business is transferred to the trust, and the trust’s terms dictate how the business is managed or distributed after the owner’s death.
2. Use a Buy-Sell Agreement
A buy-sell agreement ensures a smooth transfer of business interests by stipulating how shares are sold or transferred upon the owner’s death. This can prevent disputes and provide liquidity to heirs who may not wish to stay involved in the business.
3. Name Beneficiaries
In some cases, business assets such as life insurance policies or retirement accounts can be passed directly to named beneficiaries, avoiding probate.
4. Incorporate the Business
Incorporating or forming an LLC can help separate personal and business assets, simplifying the probate process and protecting the business from creditors.
5. Plan for Succession
Clearly define roles, responsibilities, and ownership structures for the next generation. Formalizing this plan in legal documents ensures continuity.
Why Proactive Planning is Essential
The probate process can jeopardize the stability of a family business, but proactive estate planning offers solutions to safeguard its future. By taking steps to avoid probate or minimize its impact, you protect not only the business but also your family’s financial well-being.
Contact a Garden City, NY or Florida Estate Planning Attorney with Questions
Whether your family business is based in New York, Florida, or operates in both states, our estate planning firm can help you understand the complexities of the respective probate laws. From creating trusts to drafting succession plans, we’ll develop a tailored strategy to protect your business and legacy.