Special Issues When a Business Owner Dies

Following is a list of just some of the issues to consider when a business owner dies:  

1. What percentage of the business did the decedent own? If less than 100%, who are the other owners?

2. What is the business’ legal structure (LLC, corporation, etc.) and how is it taxed (C-Corp, S-Corp, etc.)? If it is taxed as an S-Corporation, consider shareholder eligibility rules and deadlines, especially if stock is owned by a trust.  

3. Where are the corporate documents, including bylaws/operating agreements, any buy-sell agreements and/or loan agreements? Is the transfer of the business interest restricted by a binding contract? Is the business subject to an option to purchase?

4. Is there a succession plan in place? Can the business continue without the decedent?  Are there key employees that can run the business in the short-term and long-term? 

5. Does the business own life insurance on the life of the decedent?

6. Is adequate liability insurance in place for any issues that may arise during the period of administration?

7. Consider whether a professional valuation will be required (for example, to establish a basis adjustment or to negotiate a sale).

 
Sell or Distribute-In-Kind?

If an estate includes business interests, determine whether the estate will sell the business, or distribute the business in-kind to one or more beneficiaries.  Ideally, succession planning will have been put in place during the decedent’s lifetime, but this is often not the case. 

If a business interest is to be distributed to more than one beneficiary, updated business operation documents may be needed to deal with management issues and address rights of first refusal and stock restriction provisions among the new owners.