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  • Tom Lewis

Estate Planning | For Tomorrow Belongs To The People Who Prepare For Today.



Article by: Kyle Dickerson



My latest streaming obsession has been HBO’s Succession - a story chronicling the lives of the fictional Roy family, whose members control Waystar Royco, one of the largest and most politically influential media companies in the world. Over the course of three seasons, viewers watch the Roy family and their “family business” experience countless trials and tribulations. And while the portrayal of the dysfunctional Roy family and their company in Succession is embellished for entertainment value, the show depicts many real-life situations that business owners and their families can experience, including: the incapacity of a chief executive, sibling rivalry, divorce, disinheritance, family members with substance-abuse issues, corporate buy-outs, and the challenges that can arise upon the death of business owner over company ownership and management/control, which can be especially complex in a blended family that includes children, step-children, a second (or subsequent) spouse, and in-laws.


Business owners need to plan ahead and have an exit strategy for their business when the time comes and they no longer have the ability or desire to actively participate. This planning should include considerations for both an anticipated departure (i.e., retirement), as well as considerations for an unfortunate, unplanned departure caused by disability or death.


If you have an ownership interest in a small business, you need to consider the following:


1. Have an estate plan.


When a person dies without an estate plan, then NC state law (referred to as intestate succession) controls who inherits the decedent’s property upon death. If a business owner dies intestate and leaves a surviving spouse, one or more children and/or parents, then the deceased owner’s business interests would likely be divided among numerous beneficiaries. If the beneficiaries include minor children, then matters get even more complicated and may require involvement of a guardian and/or court approval before any transfer or sale of the minor’s interest in the business can be accomplished.


Special considerations should be made whenever other family members are actively involved in the business. In some family owned businesses, one child lives locally and is actively involved in business operations, while other children have pursued other careers and/or live out of state.


In a carefully drafted estate plan, the business owner’s will or trust could address numerous issues including, who receives the business interest, who manages the business, how the business is valued, etc. In addition to creating a will/trust, a business owner should have a durable power of attorney to address who has decision-making authority over the owner’s business interests upon the owner’s physical or mental disability/incapacity.


2. Consider who should have decision making authority.


Who is best suited to continue the operation of the business if you were unable to participate. Is there a partner or other key employee who can step in? Will your Agent/Executor/Trustee have the ability continue the operation of the business, or should they wind it down, or sell it?


3. If there are multiple owners of the business, are there any written agreements or provisions that address what happens upon the death/incapacity of an owner?


Do you have (or need) any of the following:


  • A Stock/Membership Restriction Agreement. These documents allow owners to limit who can become a new owner/member in the business.

  • A Buy-Sell Agreement. These are contracts among shareholders or partners that establish a plan for the business in the event of the death or incapacity of an owner. One principal benefit of a buy-sell agreement is that it can establish a mechanism to value an owner’s share in the business.

  • Key-man or other life insurance. If the business assets are not liquid or there is otherwise need for cash in the acquisition of an owner’s interests, life insurance on the owner (either owned by the business, other owners or family) can provide the necessary capital to keep the business going or to buy out a deceased owner’s interest.


4. Are there special considerations involved due to the unique nature of the business?


Can the intended beneficiary own the stock/membership interest?

  • If the business is an Subchapter S-corporation, the beneficiary must meet the eligibility rules of the IRS (not all trusts qualify).

  • If the small businesses is a professional company, then only individuals with a specific professional licensure (i.e., doctors/dentists/accountants/engineers) may own the stock/membership interest.


5. Discuss your succession plan with your business partners, professional advisors, and family.


This one speaks for itself, but it is important to reiterate because a number of difficult decisions may need to be made quickly upon the death or incapacity of a business owner. Co-owners should seek agreement about what happens when an owner departs the business. Professional advisors need to understand the owner’s desires in order to develop a plan to accomplish the desired outcome. And the business owner and his/her family will have the opportunity to hear each other’s expectations and desires concerning the future of the business.


Sumrell Sugg, P.A. is a regional legal firm that provides clients with first-rate services in a cost-effective manner. Whether clients are individuals, corporations, or local governments and municipalities, our firm delivers on an undeviating promise of service. For more information, visit us at www.nclawyers.com.




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