07 Dec 2020 | 12.01 pm
Handling Probate On Business Assets
Counsel from solicitor Daireann Gibson
07 Dec 2020 | 12.01 pm
Major changes have recently been made to how grants of probate are obtained, explains Daireann Gibson of Gibson & Associates
Probate is the legal process of dealing with a deceased person’s estate. If an estate includes business assets, it can make the probate process complex as it is likely to be one of the most significant assets in the estate and will require careful consideration.
The ability to sell or transfer business assets during probate will depend on a number of factors: does it have employees, is it still operational, and what property is owned by the business?
A Grant of Representation (also referred to as a Grant of Probate) or Letters of Administration will always be required to deal with business assets after the owner has died.
In September last, significant changes were made to the application process for Grants of Probate and Letters of Administration.
Under the new system, solicitors and personal applicants, such as executors or administrators of an estate, will be required to complete and submit an application online before lodging it with the Probate Office and the District Probate Registries.
There are three major changes to the current process. Applicants will need to submit a new online Inland Revenue Affidavit called the Statement of Affairs (Probate) Form SA.2. This can be completed by logging on to the Revenue’s Online Service or through MyAccount on their website.
Once the form is submitted, a Notice of Acknowledgement (Probate) form will be auto-generated, including all the top-line information the Probate Office needs to use.
Applicants will need to print this acknowledgement and submit it to the Probate Office with any other required papers to obtain a Grant of Probate or Letters of Administration.
How business assets are handled
When the owner of a business dies, probate can be lengthy and complicated as their business assets have to be valued and transferred. The decision to sell or transfer business assets depends on the way the business was owned and operated in addition to the wishes of the deceased.
If the deceased was a sole trader, then their finances and assets are simply treated as part of the estate. Where the deceased was in a partnership, there would normally be an agreement in place setting out what is to happen in the event of the death of a partner, as well as providing details of each partner’s contributions and liabilities.
Separating the estate from the partnership can be complicated, which is why legal advice should be taken by an executor or administrator acting on behalf of the estate.
If the deceased owned shares in a private or public limited company, the Articles of Association should explain how shares can be sold and/or transferred — for example, the first refusal must be given to the other company directors.
Should a decision be made to sell or shut down a company, the executor or administrator may be liable for certain aspects of the business. If there are other owners or partners, liaising with them will be essential and, if not, someone should be appointed to run the business while a buyer is sought.
This could involve dealing with debtors and creditors, as well as the associated administration of handling any employees still on the payroll.
Executors or administrators may be held personally liable if there are any errors made during the administration of an estate.
How to avoid problems in probate
The probate process is already an incredibly difficult time, with delays, expenses and, in some cases, court battles. For family and friends handling matters, this can add pressure to an already stressful situation. Many of the problems that arise during probate can be avoided with a well-organised estate plan.
Wills: If a business owner dies without a will, the probate law of the state will take over and manage the distribution of the properties unless an application is made for Letters of Administration. A will informs the probate court of what you want to happen to your business and other assets.
Making a will allows you to appoint an executor to handle the matters in your will. It is also advisable to appoint someone to manage your business while probate is taking place.
Trusts: If the business is placed in a trust, then it can pass on to the next generation without going through probate. You will need to include details of the trust in your will to ensure it is taken into account during probate.
Succession planning: Business owners need to think about succession planning during the day-to-day running of their business. Traditionally, many owners have kept their intentions confined to a will, where the contents might only be known after they pass away.
Succession planning allows a business to continue running smoothly while avoiding costly and damaging disputes during probate.
By properly planning for how your business will be handled after your death, you can ensure that your wishes are met and the beneficiaries receive exactly what you intended to pass on to them. It can also help make an already distressing time less stressful, time-consuming and costly.
• Daireann Gibson (pictured) is principal in Gibson & Associates Solicitors