Why Adding Someone to Your Business to Avoid Probate Can Backfire: A Real Estate Planning Story

During an estate planning consultation I ran into a situation I’ve seen many times over the years—one that I suspect happens far more often than people realize. Because so many families face the same dilemma, I wanted to break it down in a way that can help others who are weighing similar choices in their estate planning.

Meet “Bob” and His Two Estate Planning Goals

For privacy reasons, we’ll call today’s client “Bob.” Bob came in with two very common goals:

1. Keep costs as low as possible while still getting the protection he needs.

2. Ensure his long-term girlfriend of 10 years receives something when he passes, even though most of his assets will ultimately go to his son.

Bob owns a long-standing business, and that business generates the majority of his assets through accounts receivable and ongoing cash flow. When Bob passes away, his son and girlfriend will be receiving their inheritance primarily from that business.

Because Bob wanted to keep legal fees minimal, he wondered if he could add his son to the business now, avoid probate, and simply trust his son to give a specific gift to his girlfriend later.

At first glance, this sounds easy and economical. Many people take this same route with their business, home, or financial accounts. But what seems simple can create serious, expensive problems later.

Let’s break down why.

The Pitfall of “Just Adding Someone” to an Asset

1. Your wishes are not legally enforceable once you give someone ownership

This is one of the biggest myths in estate planning.

If Bob adds his son to the business during his lifetime, the son becomes a co-owner. When Bob dies, the son automatically becomes 100% owner, bypassing probate.

Here’s the problem:

• It does not matter what Bob writes in his will.

• It does not matter if he writes his wishes in a letter, napkin, or business document.

• It does not matter if he verbally instructs his son to give money to the girlfriend.

Once Bob gives away ownership, the law gives the son full control. Bob’s wishes are not enforceable, even if they’re written down.

Bob might trust his son completely—and many parents do—but legally, there is no guarantee the girlfriend would receive what Bob intended.

2. You create an instant business partnership—with all the risks that come with it

Bob’s business is an LLC that he has operated alone for years. That means:

• No partners

• No annual meetings

• No shared decision-making

• No internal disputes

• Very little administrative upkeep

Adding his son as an owner changes all of that.

Even if the intention is “I’m only adding you to avoid probate,” the law does not see it that way. When you add someone to a business, they instantly gain:

• Ownership rights

• Voting rights

• The ability to challenge decisions

• The ability to cause a dispute

And disputes happen—even between parents and children, even in loving families, and even when everyone thinks “that would never happen to us.”

Business disputes are notoriously expensive and time-consuming. In a worst-case scenario, Bob could lose part—or in extreme situations, even all—of the business he spent years building.

3. Unexpected tax consequences

Many people don’t consider the tax implications of adding someone to a business:

• Is adding the son considered a gift?

• Does anyone owe gift tax?

• Is the son paying for ownership?

• Will this create capital gains issues later?

These are not simple questions, and accidental gifting can create expensive tax surprises.

Why a Revocable Living Trust Avoids These Problems

Bob’s motivation for adding his son to the business was simple: he wanted to avoid probate. That’s understandable—probate in Florida can be slow and costly.

However, the safer and more reliable solution is a revocable living trust.

A trust:

• Avoids probate

• Keeps Bob the sole owner during his lifetime

• Allows him to decide exactly what the girlfriend gets—with legal enforceability

• Protects the business from disputes

• Eliminates the tax uncertainty

• Prevents accidental loss of the business if conflict arises

• Gives him full control until the day he passes

Yes, a trust costs more upfront than adding someone to a deed, business, or bank account. But compared to a lawsuit, tax issue, or broken family relationship? The cost is minimal.

In nearly 25 years of doing estate planning, I have seen countless situations where “cheap shortcuts” ended up costing families tens of thousands of dollars—and sometimes far more—because the plan did not protect the asset or the people involved.

Before You Add Anyone to a Business, Deed, or Account—Stop and Talk to an Attorney

People get creative when trying to avoid the cost of proper estate planning:

• Adding children to deeds

• Adding partners to business ownership

• Adding friends or relatives to financial accounts

• Giving away property early

These shortcuts can—and often do—go very wrong.

If you’re thinking about adding someone to your property, business, or accounts, please talk to an attorney first. A quick consultation can save you from years of headaches, disputes, or unintended consequences.

Often, the more affordable, safer, and more predictable path is setting up a proper estate plan in advance.

Need Help With Your Estate Plan in Florida?

If you’re in Florida and need guidance with your Estate Planning, we’re here to help atCause Law Office—the non-stuffy attorneys.

Whether your situation is simple or complex, we can explain your options clearly and help you avoid the pitfalls that so many families run into unintentionally. Schedule a Free Consultation today!