Probate is a process where the court validates your will, settles debts and distributes assets to the right people. Understanding what this process does and how it can impact your company can help you prepare your loved ones for what comes after.
Business operations under a court-appointed representative
Once probate begins, the court appoints a personal representative to manage the estate. In Michigan, this person holds the legal authority to oversee and maintain business operations for up to four months, and can continue operations throughout the probate timeline with court approval or by converting the business to a different legal structure.
Their duties during this period can include managing employees, paying business debts and preserving the value of any venture the owner held. They may also need to hire accountants, attorneys or other professionals to assist with complex assets.
The effect of business structure on probate
The legal structure of your enterprise significantly dictates its treatment during the probate process. Under Michigan law, different business entities are subject to distinct statutory frameworks upon an owner’s passing.
A sole proprietorship does not exist as a separate legal entity from its owner. When the owner dies, operations end and its assets become part of the personal estate. This outcome often creates uncertainty for employees, vendors and customers.
Corporations and limited liability companies (LLCs) operate as separate legal entities. These businesses usually continue running after an owner dies. The deceased owner’s shares or membership interests still go through probate, but the company itself can keep operating during that time.
Partnerships fall between these two models. If the partners do not create a succession plan, the partnership ends when one partner dies. The remaining partners and the estate must then close out the business and settle the financial share that belongs to the deceased partner.
Business protection strategies before probate
A buy-sell agreement creates a clear plan for ownership transfer after a triggering event such as death. It often establishes valuation and names a funding source such as life insurance to support the transition. LLC operating agreements and corporate bylaws can also include succession terms that limit court involvement.
A revocable living trust offers another option. You can place ownership interests into the trust so a successor can take control without court approval. Even so, creditors can still make valid claims against trust assets and Michigan law requires the trust to address those claims under the Michigan Trust Code.