BankAtlantic v. Estate of Glatzer, — So.3d —-, 2011 WL 1877839 (Fla. 3d DCA May 18, 2011)

When a business owner passes away you may be asked if this means the business needs to stop operating until the probate court appoints a personal representative or enters some other order having to do with the decedent’s estate. The answer is usually NO.

Even when owned 100% by a decedent, corporations retain their separate legal existence, which means the corporation’s asset don’t automatically become assets of the probate estate. This rule is sometimes forgotten when probate courts deal with closely-held businesses. For example, earlier this year I wrote here about a probate judge getting reversed for failing to recognize the separate legal existence of a New York LLC for jurisdictional purposes, even if a Florida decedent owned 50% of the LLC.

In the linked-to case the dispute was over control of cash in a bank account held in the name of a deceased physician’s professional association or “PA.” A PA is a form of corporation. The probate judge ruled the cash in the PA’s account had to be transferred to the estate’s control, even though this cash had been pledged as security by the PA for a loan that came due when the physician died. As explained by the 3d DCA, this ruling ignored the separate legal existence of the PA, warranting reversal. Here’s why:

The decedent personally guaranteed his professional association’s promissory note, and his death constituted an event of default under that note. The orders requiring transfer of the funds to a different bank thus impaired BankAtlantic’s right of setoff. Although the parties agreed that the deceased physician owned all of the shares of his professional association, there was no evidence presented to support a “piercing of the corporate veil” under Dania Jai–Alai Palace v. Sykes, 450 So.2d 1114 (Fla.1984), or any other alter ego theory. While the appellee Estate was apparently entitled to take possession of the professional association stock held by the doctor at his death, no such conclusion extended to the association’s funds on deposit in the corporate name at BankAtlantic. In Gettinger v. Gettinger, 165 So.2d 757 (Fla.1964), the Supreme Court of Florida held that “the affairs of a corporation, even though substantially owned by a decedent, cannot be administered by decedent’s executor as assets of the decedent’s estate.” In this case, “substantially” is 100%, and the result is identical.

. . . The point in this case is that the stock of the professional association is an asset of the Estate, but the funds of the professional association are a step removed from the Estate. The decedent’s Estate essentially ignored the separate corporate existence of the professional association and that entity’s obligations to its own creditors.