Establishing a business in Ohio is a relatively straightforward process which requires submitting documentation to the Secretary of State. Many of our estate planning clients are also entrepreneurs or business owners. However, when forming a business, succession planning is rarely a priority—an oversight that can result in costly, time-consuming, and public probate proceedings down the line.
Understanding Probate And Its Implications
Probate is the legal process through which a decedent’s assets are formally transferred to their rightful heirs. For example, if an individual passes away without a Will, their surviving spouse may need to petition the probate court to obtain ownership of the decedent’s assets. In other cases, children or siblings may be required to submit a Last Will and Testament to the court to facilitate asset distribution in accordance with the decedent’s wishes. Regardless of the scenario, probate is often an unavoidable step for loved ones seeking access to assets they are legally entitled to when thoughtful planning was not done during the decedent’s lifetime.
Given the procedural and emotional burdens associated with probate, many individuals take proactive steps to structure their assets in a way that circumvents this process. Yet, one of the most frequently overlooked assets in this regard is a business interest—an omission that can have significant consequences.
Why Business Interests Should Avoid Probate
There are several compelling reasons to ensure that business interests are not subject to probate:
Loss of Privacy
When a business interest is probated, sensitive corporate records may be published on the probate court’s public website. Most business owners are understandably uncomfortable with this level of exposure. Maintaining confidentiality is a cornerstone of sound business practice, and probate undermines that principle.
Burden on Surviving Partners
In businesses with multiple owners, surviving partners may be forced to engage in the probate process to resolve ownership issues. This can be both time-consuming and expensive—an unwelcome distraction for those already managing the operational impact of a partner’s passing.
Operational Disruption
For sole proprietors, the absence of a designated successor can bring business operations to a standstill. Until the estate is formally opened and letters of authority are issued by the probate court, no one is legally empowered to manage the business. This can result in frozen bank accounts, unfulfilled client obligations, and a complete halt in operations.
These examples illustrate why avoiding probate for business interests is not merely advisable—it is essential.
Strategies for Avoiding Probate
The appropriate strategy for avoiding probate depends on several factors, including:
- The type of business entity (e.g., LLC, corporation, partnership)
- The number of owners or partners
- The governing documents already in place (e.g., operating agreement, bylaws, subscription agreement, partnership agreement)
For instance:
- A single-member LLC may benefit from a Declaration in Lieu of Operating Agreement that transfers ownership units to a trust or designated beneficiary upon death.
- In the case of a corporation, assigning stock to a trust during the owner’s lifetime or executing transfer-on-death documentation may be appropriate.
There is no one-size-fits-all solution. Each approach carries its own advantages and limitations, which is why it is critical to disclose any business interests to your estate planning attorney. Doing so is the best way to ensure that your business is properly titled and structured to avoid probate.
Next Steps
If you hold an interest in a business and wish to ensure it is excluded from probate proceedings, I invite you to schedule an initial consultation. Together, we can explore how your business integrates into your broader estate plan and develop a tailored strategy that protects your legacy and minimizes disruption for your loved ones.