What Happens When Corporate Bylaws Conflict With Your Estate Documents?

A business is property, and because it is property, it is part of your estate when you pass on. Like any property it can be left in a will, or as part of a larger estate plan. But businesses are also unique from other assets that may be part of your estate, in that the business has its own governing documents, like bylaws, shareholder agreements, operating agreements, managing agreements or partnership agreements.

What happens when these organizational or governing documents of a business conflict with something in your will?

Avoid the Problem

The best way to avoid this problem is to review your organizational documents, and let your probate or estate attorney review them, to make sure that there is no conflict between your estate documents, and the business’ organizational documents.

If there is a conflict, you can be certain that there could be a contest of your will, or a challenge to it, by anybody who may receive a part of the business in one document and not the other.

Who Wins a Challenge?

Although every case is different, probate courts will look to the governing documents of the business first. Often, the documents will have language that prevents the business from ever being part of your estate when you pass.

For example, bylaws may say that on the death of a member, shareholder, or an owner, that the deceased’s interests “immediately vest,” or “immediately pass on to” someone else. In that case, courts have ruled that the business or your interest in it is not part of your estate at all—it has already passed onto whoever else the entities’ documents say they have passed onto.

When there is a conflict between people you leave your business to in your estate, and people who should get your business pursuant to the entity’s governing documents, what usually results is fully contested litigation in civil court—not the probate courts. The people who have a claim to your business under the company’s documents are essentially creditors of the estate, with a claim on the estate’s assets.

This can be time consuming and costly, and can hold up the full administration of your estate in the probate courts.

Contracts Win

When it comes to businesses, contracts and corporate documents take precedence over wills and estate documents. However, this will also depend on the language of the corporate documents, and whether they expressly deal with or address, the passing of whoever has an ownership interest in the business.

What Do You Want to Happen?

There is no right and wrong, no good and bad, when it comes to whether company documents or estate documents should control. The only goal is for them to conform to one another, and if you aren’t happy with the end result (that is, who will ultimately inherit your business interest when all documents are read together), to change things while you are here and can still do so.

We can help you with your probate problems that you may have. Call a West Palm Beach probate lawyer at The Law Offices of Larry E. Bray today.

Sources:

casetext.com/case/barnecut-v-barnecut

casetext.com/case/finlaw-v-finlaw