Published in the Oregon State Bar Business Law Section Newsletter
December 2025
Business owners often reach out to their attorneys during times of growth (to structure a new endeavor, facilitate a transaction, or finance an expansion) and during times of despair (to avoid a bankruptcy or navigate a lawsuit). Rarely do business owners reach out to discuss how a possible untimely death may impact their business. That is why it is essential for business attorneys to ask the right questions to ensure that each client’s business ownership and succession plan is fully integrated and consistent with their estate planning. Taking this crucial, extra step will add value and give your clients additional peace of mind.
They had an estate plan? Oh no!
Every good corporate attorney advises their closely held business clients to establish a shareholders’ agreement, which can cover things like voting, management, and succession planning. The same applies to an operating agreement for a limited liability company or a partnership agreement for a partnership. Most shareholders want to keep control of the business with the remaining shareholders if a shareholder retires, dies, or becomes disabled. Therefore, it is common for a shareholders’ agreement to obligate the estate of a deceased shareholder to sell that person’s shares to the corporation or to the remaining shareholders.
But what happens when a deceased shareholder’s estate plan disposes of the deceased shareholder’s shares in a different way, such as to their surviving spouse or their children? Whether the shareholders’ agreement or the deceased shareholder’s estate plan governs the decision depends on the details, but the disconnect between the two could have been avoided if the corporate attorney had asked about each shareholder’s existing estate plans. A corporate attorney could point out when a proposed transfer at death would not be permitted (or desirable) under the business and succession plan and work with a shareholder to ensure the totality of their planning is consistent.
Other issues arise when there is no open communication between the transactional attorney and their business client. Imagine that you assist with forming a limited liability company among four members, the purpose of which is to own and rent out apartment complexes (“Rent, LLC”). Rent, LLC is member-managed, and all of the members enjoy participating in the management of the business. The business is thriving and is operating smoothly with each member being involved in Rent, LLC’s management. Two years later, one of the four members dies. At that time, you discover that the deceased member had established a joint revocable trust (“Family Trust”) with her spouse—but the membership interest in Rent, LLC was held in her name, individually, not titled to the Family Trust. What happens?
A probate or simple estate proceeding would be required so that someone would have legal authority with respect to the deceased member’s interest in Rent, LLC. While a probate may be initiated immediately after death, a simple estate proceeding may not be initiated sooner than thirty days after the date of death; notwithstanding, both a probate and a simple estate proceeding require a four-month creditor claim period during which the assets are restricted. Overall, it would be unusual to administer an estate in less than six months from date of death, and during the administration, the decedent’s membership in Rent, LLC would be subject to court oversight and intervention, which could hinder the company’s management and operations. Because Rent, LLC is member-managed, the personal representative or affiant of the decedent’s estate would need to sign (or vote) as a member for each action of Rent, LLC requiring member approval. Further, the personal representative or affiant may even need court approval to take certain actions, such as approving the sale of Rent, LLC.
Additionally, the personal representative or affiant would have to work with the other members of Rent, LLC (potentially in court) to navigate the operating agreement’s terms that govern with respect to the deceased member’s interest in Rent, LLC. Court intervention would be necessary if the terms of the operating agreement contradict the dispositive provisions of the deceased member’s Will, which presumably directs transfer of the decedent’s membership interest to the Family Trust and administration for the beneficiaries of the Family Trust (what is often referred to as a “pour-over will”).
Asking your client if they have an estate plan can prevent these types of delays and conflicts. Additionally, once you know your client’s estate plan, you can help them get the most value out of it by ensuring that their business assets are properly titled and that their expectations match the reality reflected in their business and estate planning documents. This can be accomplished by discussing—often in excruciating detail—what they want to happen to their business operations when they die or become incapacitated and what would be required for the continued success of their business.
Have you seen Succession (on HBO Max)? Well, we need to talk…
It can be difficult to discuss business succession with clients, as it requires discussing their retirement, possible incapacity, and inevitable death—topics people often struggle facing head-on. When approaching this discussion with clients, it is important to have a roadmap that keeps you on track so that you hit on key topics rather than saying “So, what’s next?” Guiding your clients through this conversation will make it easier for them to discuss these topics and will also create a clear succession plan that can then be mirrored in their estate plan.
For some clients, succession planning will be straightforward. For others, it can be extremely complex. Succession planning can touch on many sensitive subjects, such as upsetting family dynamics, difficult business partners, and long-time employees. Sometimes succession means no succession and winding up; sometimes it means selling the business and distributing out all assets or net sales proceeds. Other times, succession means leaving the business in the hands of key employees who are not currently owners. In this situation, it is essential that the corporate attorney is in contact with the estate planning attorney to ensure that the dispositive provisions of the owner’s estate plan match their intended succession plan. It is often best to prepare a detailed shareholders’ agreement, operating agreement, or partnership agreement (depending on the form of entity), to which the intended successor owners will be bound. The owner’s estate plan must also require that the named fiduciaries (agent under a durable general power of attorney, trustee under a trust, and/or personal representative or affiant under a will) be bound to the terms of that agreement.
Often clients plan to leave their business—or the economic benefits of their business—to their surviving spouse and children, or to other family members who they hope will either continue their legacy or otherwise benefit from what they built during their lifetime. While this may seem straightforward, it is crucial to discuss the details. For example, let’s say Tammy owns nine hundred shares in Timber Tammy, Inc., an Oregon corporation (“Timber”), and her children Tara and Timothy each own fifty shares of Timber. You have been Timber’s corporate attorney since Tammy founded Timber more than thirty years ago. Timber is a successful timber harvesting and logging business located in Oregon, which supplies high quality wood products to vendors throughout the Pacific Northwest.
You schedule a meeting with Tammy to discuss business succession. To start the meeting, you outline the current ownership of Timber and ask about the children’s involvement. You learn that Tara is excelling in the business and has become VP of Operations. Tammy is working with Tara daily and teaching her the ins and outs of Timber. Tara’s older brother, Timothy, does not enjoy the “business” side of Timber, but loves being in the field, where he works closely with many of Timber’s employees and supervises the timber harvesting.
For Tammy, the business succession of Timber may seem clear—her two children will each receive one-half of the shares in Timber and run the business together. However, there are a few important questions you should ask: (1) When does Tammy want to retire from Timber? (2) Does Tammy intend to own all her shares in Timber until she dies? (3) Will her children own equal shares in Timber on her retirement and/or death? (4) Do her children want to co-own and together operate Timber after Tammy’s retirement and/or death? (The older sibling does physical work, and the younger sibling is in the office, so their expectations and timelines may dramatically differ.) (5) Does Tammy have an estate plan that generally benefits her two children equally; does it specifically address the transfer of her shares in Timber on her death?
Tammy responds as follows: (1) She wants to retire in seven years. (2) She thinks she wants to maintain ownership of her shares in Timber after retirement, but she is not sure exactly what the benefits and consequences of that would mean. (3) She wants Tara to own a controlling interest in Timber since she will be running the business and Timothy will be boots-on-the-ground. (4) Yes, both Tara and Timothy plan to own and operate Timber for at least the next ten to fifteen years. (5) Yes, she does have an estate plan, and she “doesn’t know what it says!”
After requesting copies of Tammy’s estate planning documents, you learn that she has a grantor revocable trust (“Trust”), which owns only 500 of her 900 shares in Timber. It directs that 350 shares be distributed to Timothy and 150 shares be distributed to Tara, in trust for life. Finally, Timothy is named as a business trustee with respect to all of Tammy’s shares in Timber (which presents issues, as only 500 of Tammy’s 900 shares are titled to the Trust, so Timothy cannot act as Business Trustee with respect to those remaining 400 shares without some form of court intervention).
You realize that Tammy’s current estate plan does not address her full ownership in Timber and is not aligned with her stated business succession goals. These differences can easily be resolved but do need to be addressed. Tammy’s full nine hundred shares of Timber should be titled to the Trust (not in her individual name). The Trust should be amended and restated to change the dispositive provisions so that, on Tammy’s death, all of her shares in Timber (whether it be nine hundred shares or some different amount, because Tammy may have more shares issued or some shares redeemed during her remaining lifetime as part of her retirement planning) be distributed 51 percent to Tara and 49 percent to Timothy. Tara should be named as the Business Trustee so that she would manage the shares of Timber (and make pertinent shareholder decisions) under the Trust’s administration.
If you hadn’t asked Tammy these questions, her goals with respect to Timber’s succession would have been thwarted by her own estate plan. Further, her existing estate plan could have caused tension between her two children. For Tammy, your questions provide value and give her the opportunity to update her planning.
Tax savings? Say more.
Tamny is so thankful for your thoroughness and advice that she sets up a joint meeting with you and her estate planning attorney. At that meeting the three of you discuss her goals with respect to Timber and updates to be made to her estate plan. Together, the three of you realize that Tammy’s shares of Timber and their disposition after her death will likely qualify for the Natural Resource Property Exemption under ORS 118.145. Under this exemption, up to $15 million of the value of a decedent’s interest in natural resource property is exempt from Oregon estate tax. Timber owns qualifying natural resource property located in the state of Oregon, and Tammy intends to maintain ownership of Timber (as Trustee of her Trust, which is a revocable grantor trust) until her death (especially since she now knows this could reduce her Oregon taxable estate by an additional $15 million). Because Tammy has always intended for her children to take over the business after her death, and her children desire to do so, this exemption is a valuable savings to Tammy and her children.
Assuming Tammy’s estate is able to take full advantage of the natural resource property exemption (in addition to the standard $1 million Oregon state estate tax exemption amount), you would have assisted her estate in saving approximately $2,062,500 in Oregon estate taxes. These savings may not have been achieved had you not met with Tammy with the goal of fully integrating her business succession plan and her estate plan.
What we can learn from Tammy’s story is that corporate and transactional attorneys have a great opportunity to add value to their work by keeping estate planning considerations in mind. Corporate and transactional attorneys need not become experts in estate planning or tax to assist their clients in these areas. Engaging local counsel to work through these matters with your clients will save them time, money, and heartache in the future by ensuring that their assets are properly distributed after their death in accordance with their wishes.
Natalie E. Smith is a lawyer in our business department. She advises clients on legal issues and challenges related to business planning, tax, estate planning, and real estate transactions. She can be reached at nsmith@sussmanshank.com.
