Cautionary Tales - Is your business legally naked? - Episode 195

Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is the “cautionary tales” topic. And on these “cautionary tales” episodes of Legal Tea, we normally talk about real-life cases with real-life clients that are things me or my office have worked on -or they are things that I think are generally good things to be aware of, so you don’t turn into a cautionary tale on my Legal Tea podcast one day! Today is about a common misstep that we commonly see business owners make – and when I say business owners, I am using that term very generally as in I am also talking about, like, farmers who operate their farms through entities like LLCs, people who have side gigs, etc.

What’s the misstep I am referring to? Well, it’s that so many people who have an interest in a business will fail to incorporate the business as part of their estate plan – meaning they think the business will just easily transfer to their spouse, business partners, or whoever. We should all know that things are so rarely THAT easy when it comes to legal stuff. So, we’re going to start with a real-life story to demonstrate what I am talking about, then we are going to shift into what SHOULD have been done to avoid the mistake … and well, avoid turning into a cautionary tale on this podcast! Here is the story… some of the details have been altered to preserve confidentiality.

Meet Jane. Jane and her husband, John, owned a business – a family-owned painting company – for many decades. As many husband-wife teams, John did a lot of the “business” stuff (like the books) and Jane did a lot of the communication and coordination with clients. Jane, therefore, was not really involved in much of the business side. Sadly and a bit unexpectedly, John passed away. Jane, after dealing with the immediate stuff after John died, thought, “Maybe I should talk to a lawyer to make sure there’s nothing I need to do…” So she found our office and scheduled a meeting. We had no relationship with John and Jane before John’s passing – so we had not done their estate plan.

Fast forward to the meeting day. Jane comes to the office and we start going through how assets are owned, beneficiaries on assets, etc. to make sure nothing needed to be done legally-speaking following John’s death. Everything looked in good order – their assets were joint with each other and beneficiary-designated with each other, so everything was just going to pass to Jane. There was no mention of the business. To this day, we assume that Jane just didn’t see the business as an “asset” to mention – so this meeting ended and she walked away with a lot of peace of mind thinking there was “nothing to do.”

Some time passes and Jane apparently goes to the bank to do something with the business accounts. The bank essentially told her that while they understood the business was both of theirs – only John’s name was listed as the signed for the business accounts. So, they asked her for business records to show that she was, indeed, a joint owner of the business. She was like, “Okay – I’ll go home and see what I can find.” She heads home and can’t find anything in “the office” so a little stuck, she calls our office and explains what is going on. Initially, we were thinking, “Wait, there is a business? No one mentioned the business!” which like I said, so many people just don’t think of a business as an asset, so it is what it is!

We end up scheduling another meeting with her because it was a bigger conversation that just a simple phone call could address – and that also gave us time to do some digging with the Secretary of State to come to the meeting prepared with what news we’d likely be delivering. What we found was startling … with the Secretary of State, it only listed John as the owner and member of the LLC. While he had been keeping up with the required reporting to the State, we perused the reports to see if ever got Jane listed anywhere. Nope. So, before our meeting with Jane, we gave her a call and basically said, “Dig through the office and if there’s anything you find that looks legal-like for the business (whether it was agreements, bylaws, meeting minutes, etc.), to bring it. Our plan for the meeting with Jane was going to go through what she brought and hope that she found something that would save the day.

She comes in for the meeting and very long story short, all she could find in the office was the original Article of Incorporation from when the business was first registered with the State. Nothing else. What did that mean? Well, that meant, legally speaking, the business was solely by John – and now that John has passed away, we’d have to look to his estate plan as “what’s next.” Thankfully, John and Jane did have some basic estate planning – so John had a Will directing assets to Jane, at his passing. To determine if we would need to go through the probate process, we needed to know how much in assets the business had – there were cash accounts and two properties that totaled around $1.5 Million Dollars. Yes, you heard that right.

With that type of value, we had to lay the “bad news” on Jane and tell her that with that kind of value, we were going to have to take John’s business interest through probate to legally be able to transfer things over to Jane. So, you can imagine how that went … it impacted the flow of the business, the bank got grumpy and threatened to put a freeze on the account, etc. It wasn’t good – all because while it was very much a joint venture, the business was only in John’s name since there was nothing paperwork-wise to show otherwise. Such a bummer! We finally got through the probate process … got the business transferred over to her … but that took several months (about 6 months) and legal fees (to go through probate and “fix” the mistake). Both of which could have been avoided with proper planning. So let’s talk about that…

For business owners, estate planning should not be optional, but it unfortunately (like Jane experienced) is—it’s critical to get a succession and estate plan in place to support the business, your spouse, and/or your family. As we all know, the reality is that no one is immune to illness, incapacity, or the unexpected – including business owners. If you don’t have a plan in place, the business you spent years or decades building can quickly unravel, leaving your family in crisis, your staff in limbo, and your clients without direction. Whether you own a solo practice, a family business, or a company with partners, having the right legal DOCUMENTS and structures in place is the only way to ensure your business survives you—and continues to thrive.

At the heart of this kind of planning are legal documents that do not just sit in a drawer (even though that is sometimes what it feels like for those that DO have proper business documents in place) —rather, they actively protect your business when you no longer can. A Revocable Living Trust allows your business interest to pass seamlessly without going through probate, avoiding months—or even years—of court delays. This would have really helped Jane in the story. Really, really helped. With the right successor trustee named, your business can continue running smoothly even while your personal affairs are being handled. Another document to mention is a Durable Power of Attorney, which is essential if you become incapacitated; it empowers someone you trust to manage critical financial and business decisions without needing court intervention. In our story, Jane could have easily been appointed as Successor Trustee and Power of Attorney!

If your business is owned with others, a Buy-Sell Agreement is another document that is a non-negotiable. This document sets the rules for what happens if you die, become disabled, retire, or want out—ensuring that the remaining owners can continue the business without disruption, and that your heirs receive fair value. For LLCs and corporations, the Operating Agreement or Shareholder Agreement should clearly define who takes over management or control in the event of your death or incapacity. These internal agreements can make or break the business when succession is triggered, which succession often comes when emotions are heightened – so legal documents like this really, really help provide stability and a PATH to “what’s next” – that brings immense relief to a lot of people.

Failing to put these documents and protections in place is more than just an oversight—it is a risk that can devastate your loved ones and dismantle your life’s work. Without them, your business could end up stuck in probate (like Jane experienced), facing frozen bank accounts, halted operations, and a leadership vacuum. Worse, your family could be forced to sell the business under duress—often at a fraction of its value—or lose it entirely. Yes, I have seen that happen. Sadly.

Jane’s experience is a cautionary tale—but it doesn’t have to be yours. Estate and business succession planning is not a luxury or something to “get to eventually.” In my opinion it is a vital part of being a responsible business owner. When you fail to legally plan for the future of your business, you are not just risking paperwork headaches—you are risking everything: your family’s financial stability, your employees’ livelihoods, your clients’ trust, and the future of the enterprise you poured your life into. Without clear legal direction, even a well-run, profitable business can stall or collapse under the weight of probate delays, frozen bank accounts, and unclear authority. That’s exactly what Jane faced. Despite being a central part of the business’s day-to-day life, she was legally invisible, or as the episode is titled, the business was legally naked … when it mattered most—all because the business wasn’t documented.

But here's the good news: all of this is preventable. With the right documents in place, you create a legal foundation that keeps your business running smoothly even if you can’t. If you’re a business owner, estate planning is not just about your personal assets—it is about your life’s work. It is about ensuring that everything you have built can continue without unnecessary conflict, confusion, or court intervention. So don’t wait until it’s too late. Let Jane’s story be your wake-up call to get things in order. Your future—and your family—deserve better than chaos. They deserve a clear plan. And you have the power to put it in place.

Alrighty, let’s shift to a sneak peak of next week, which we’re circling back to the “current trends” topic where we talk about things that are going on currently that impact my estate and elder law world – or maybe, things that I have stumbled upon on the news or social media that is relevant to this podcast. Well for next week, we are going to talk about a story I ran across recently about reusing pacemakers and giving them a “second life” – which yes, sounds a bit strange, but I found the topic super interesting … so tune in for that next week, Legal Tea Listeners, so until then, be well and talk soon!

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