Trust Law Course 11 — Lesson 1: The Facts – Family Owned Businesses

[Music] In this course we will discuss problems that arise with family-owned businesses under probate code sections six four zero one where a married person dies and has no will or trust all their community property passes to the surviving spouse the surviving spouse is also entitled to either one-third or one-half of the deceased spouse's separate property this allocation is officially termed an intestate distribution scheme this intestate distribution scheme can be changed by using a will trust joint titling such as joint tenants or beneficiary designation as used in life insurance policies let's consider a hypothetical situation to demonstrate the problems that arise and the options you have when confronted with a California intestate distribution of community property and several property after the hypothetical we will discuss inheritance of assets between married couples in more detail Walter and Patty married in January 1998 they each had previously been married and Walter has two sons from his prior marriage Simon and Todd a year after marrying patty Walter created a business and both sons worked in that business for the last 18 years in February 2017 Walter died the business grew over time and was worth three million dollars at the time of Walter's death both sons helped grow the business substantially and Walter considered his sons to be equal partners in the business Walter said many times that the business would pass to Simon and Todd and he told them both they were equal owners unfortunately the business was legally owned 100% by Walter at the time of his death Walter never created a will or a trust he owned a home with patty that was titled in their names as joint tenants with right of survivorship the home is worth 1 million dollars he also had a bank account held jointly with Patty and an investment portfolio worth $500,000 after Walters death Simon and Todd tried to change the authorized signers on the business checking account from Walter to Simon and Todd but the bank refused to do so because Simon and Todd were not legal owners of the business Simon and Todd then consulted an attorney who told them the business had to pass through probate to be transferred meaning there had to be a court supervised transfer of the assets from the probate court meanwhile Patty also consulted a lawyer the lawyer helped Patty secure her home bank account and the investment portfolio in Patty's sole name since she was a joint owner Patty then asked about who would receive the business Patty's lawyer pointed out that the business was not held in a trust or governed by a will under California intestacy laws all of the community property would pass to Patty alone even if the business were considered separate property patty would be entitled to one third of the business but Patty had a claim to the business or a portion of the business either way after Simon and Todd filed a petition for probate Patty filed a competing petition for probate claiming sole ownership of the business Simon and Todd became understandably upset it appears that Patty has a good argument that she should receive the entire business from Walters estate what can Simon and Todd do to protect their rights if any to the family business here are the options option 1 contract to make a will Simon and Todd file to enforce the agreement their father made to leave them the business option number 2 find a holographic will search through Walters files to see if he ever wrote down his intentions in his own handwriting this is what's called a holographic well option number 3 file a creditors claim Simon and Todd assert that they had a general partnership at their father and they are entitled to the business as general partners option 4 negotiate with Patty Simon and Todd can negotiate with Patty in an attempt to settle a matter with her voluntarily [Music] [Applause] you.