Probate proceedings

What it means

Probate proceedings are court proceedings that start automatically after a person dies, once the court learns of the death. A notary acting as court commissioner conducts them, establishing the deceased’s assets and debts, the heirs and whether there is a will. The proceedings end with a court resolution confirming who has acquired the estate.

First the community property of the spouses is settled, determining what belonged to the surviving spouse. The rest forms the estate, divided under the will or by law. Heirs are liable for the deceased’s debts only up to the value of what they inherit.

When an entrepreneur dies, probate also concerns the business. An ownership interest in an s. r. o. generally passes to the heirs unless the articles exclude it. A trade licence as an authorisation is not inherited, but the heirs may temporarily carry on the business until the proceedings end.

How it works in practice

When a sole trader dies we help the heirs with what has to keep running: notifying the trade office that the business continues, appointing a responsible representative for regulated trades, paying employees and paying taxes. For the notary we prepare an overview of the business’s assets and liabilities as at the date of death.

When the sole shareholder and director of an s. r. o. dies, the company may be left without a director until probate ends. Nobody is entitled to sign contracts, operate the bank account or file returns. We therefore recommend addressing succession in the articles in advance, or having a second director or a holder of procuration.

For the period up to death we prepare the sole trader’s tax return, which the heirs file, and the business after death is taxed according to who continued it. The deceased’s taxes and contributions are liabilities of the estate, and the notary takes them into account when dividing it.

What to watch out for

The most common problem is the company being blocked for a long time. Probate takes months, and years if heirs disagree, and a company without a director cannot operate. A will, a shareholders’ agreement on transfer of the stake and powers of attorney prepared during one’s lifetime greatly shorten the period of uncertainty.

An heir who continues the business also takes on its risks: unmet tax obligations and liabilities to employees or suppliers. Before accepting an inheritance it is wise to know the real state of the books and debts, because an inheritance can be disclaimed, but only within a short period.