In order to have a company that will be passed down to family at the time of owners demise, does it need to be established as a trust?

Different structures may be better or worse depending on a lot of factors, including estate tax laws, the size of the business, what regulations it is subject to, etc.  However, one way of attacking the problem is to provide a mechanism for dealing with a deceased shareholder's stock in the shareholders' agreement.  You can provide that it passes to his/her family, or is to be purchased by the remaining shareholders or the corporation (at either a set price or with a set formula for calculating the price), etc.  Often a close corporation takes out life insurance policies on its shareholders for the express purpose of providing enough funds for the corporation to buy back a deceased shareholder's shares.  The problem with this method is that it is somewhat inflexible, because, unlike a will, it probably can't be changed without the agreement of at least a majority of shareholders.  A lot of things can change before a shareholder dies, including the extent to which all shareholders' are friendly and on the same page. Also, I'm not sure that this answers your question about probate.  The fact that a decedent's shares pass outside of a will, i.e. by a method set forth in the shareholders' agreement, does not necessarily mean that his/her will does not have to be probated, but it should avoid the problem of having ownership of the business in limbo while probate is going on.