Can a corporation or LLC avoid probate in Florida?

Yes, a corporation or LLC can avoid probate in Florida. However, this is not done automatically. To avoid probate, you must either move your business interest into a trust or edit the operating agreement/bylaws of the business.

How can an LLC avoid probate in Florida?

You can avoid probate for an LLC by either making a revocable living trust the member of your LLC or by editing the operating agreement of the LLC to contain probate-avoidance language.

The first probate-avoidance strategy is to move your interest in the LLC into a revocable living trust. This works because everything in a properly-drafted revocable living trust avoids probate and instead is governed by the terms of the trust. Unfortunately, a trust is not actually allowed to own an interest in an LLC. But you are allowed to make the trust a member of the LLC instead of you. And because you control the trust, you still have control over your LLC. This is the strategy traditionally recommended by estate planners.

Before 2015, moving your LLC into a trust was basically the only strategy available for Florida LLCs to avoid probate. But everything changed when Florida’s Fourth District Court of Appeal ruled in Blechman v. Estate of Blechman. In Blechman, an LLC’s operating agreement contained an instructions on how to “immediately” transfer the membership interest of a member that died. The district court held that this was enough to avoid probate because the operating agreement is a binding contract. Thus, it is now established law in Florida that an operating agreement is sufficient to transfer an LLC interest outside of the probate system.

Therefore, we can now avoid probate for LLCs with or without a trust. This can save a lot of money for clients that would otherwise not need a trust! Unfortunately, because the Blechman ruling is so recent, many attorneys are still unaware that the operating agreement can be successfully used in this manner. This illustrates how important it is to have an estate planning attorney who is constantly learning and seeking new, innovative ways to help clients.

How can a corporation avoid probate in Florida?

You can avoid probate for a corporation by either putting your stock into a revocable living trust or by editing the corporate bylaws to contain probate-avoidance language.

Anything that gets moved into a properly-drafted revocable living trust avoids probate. This includes corporate stock. Thus, as long as your stock is owned by a revocable living trust, your stock will avoid probate. Because you still have complete control over your revocable living trust, you also maintain control over the stock in the trust. This means that moving the stock into the trust allows you to avoid probate without losing control. But it does require the creation and funding of a trust.

As discussed above in the LLC portion of this post, Florida’s Florida’s Fourth District Court of Appeal ruled in Blechman that an LLC’s operating agreement can be used to avoid probate because the operating agreement is governed by contract law. This almost certainly means that you can edit corporate bylaws with the same result. This is because corporate bylaws are a contractual agreement between the stockholders and the corporation itself. Thus, the bylaws are a binding contract. This means that they fall under same category as an operating agreement. And according to the reasoning in Blechman, this should mean that the bylaws can be used to have corporate stock avoid probate.

Therefore, corporate stock can now avoid probate with or without a trust. As I noted above, this is a big deal for clients that would otherwise not need a trust. Estate planning attorneys in Florida have so many options for probate-avoidance in Florida. We are no longer bound to use trusts for everything. We can build custom solutions for clients based on each client’s individual needs.

Why does it matter if my business avoids probate?

Keeping your business out of the probate system saves money for your loved ones! It also results in a quicker transfer of the business without the involvement of a court.

Your estate will almost certainly need to open a probate after you pass away. In Florida, this is almost always the best way to avoid creditors. But you should still try to keep assets out of the probate estate. This is because most personal representatives and probate attorneys charge a percentage of the probate estate. Thus, by keeping the assets in your probate estate low, you generally lower the amount your estate will be charged.

Perhaps more importantly though, keeping your business out of probate makes the transfer of the business easier after you die. If the business ends up in probate, a judge will need to approve the transfer—even if you note down in your will what is supposed to happen. Getting a court involved means that the transfer takes time, and who knows what could happen to your business while your successor waits on the judge to approve the transfer! The smarter decision is almost always to avoid the probate process and have the business transfer immediately—without any judge getting involved.