Executive & Business Succession

The set of documents that decides who owns and who runs the company after any event that removes an owner, whether death, disability or departure. Divorce and deadlock belong on the same list and are usually left off it. For a closely held company the set is a buy-sell agreement with a price mechanism and funding, governance documents that name successor managers and define their authority, and an estate plan that moves the owner's interest to the right trust without breaking an S election or a lender's covenant. The test of a plan is whether the company can borrow, sell and pay its people the morning after the founder is gone, with no court involved.

The business interest usually passes under the revocable trust, so the trust and the buy-sell have to agree. If the buy-sell obliges the estate to sell, the trust should not promise the shares to a child; if the shares pass in trust, the trust must qualify to hold S-corporation stock within two years of death or the election fails. The Illinois estate tax, which applies above $4 million with no indexing, is often paid out of a company that has no cash, so the plan decides in advance whether insurance, a redemption or the fourteen-year installment election supplies it. We draft both document sets in the same room.

A contract among the owners, and often the company, fixing what happens to an owner's interest on a triggering event: who may or must buy, at what price and with what money. The price clause fixes the value for estate tax only if the agreement is a bona fide business arrangement, is not a device to pass the company to family for less than it is worth and matches arm's-length terms. The funding clause matters as much. Since 2024, a policy the company owns to redeem shares is counted in the company's value for estate tax without an offset for the redemption obligation, so many agreements are being converted to cross-purchase form, in which the owners insure one another. Without an agreement, an heir who knows nothing about the business becomes your partner, or the surviving owners buy at a price set in litigation.

Ten years before the intended exit, and the day the operating agreement is signed for the involuntary one. Ten years is roughly what it takes to move non-voting interests to children in annual and exemption gifts at discounted values, to train a successor who can be judged on results, and to test a buy-sell price mechanism against a few real appraisals. The involuntary events do not wait, so the buy-sell, the durable power of attorney covering business interests and the S-corporation trust provisions are drafted at formation and revised at each financing. Owners who start when a diagnosis arrives still have options, but fewer of them and at worse prices.

The statute decides. In Illinois an LLC member's death is a dissociation: the estate takes a transferable interest, meaning the right to distributions, and the surviving members keep the vote and need not admit the heirs. Shares of a corporation pass through probate, where Illinois gives creditors six months from first publication of notice to file claims, and nobody can give clean title to the stock until the estate is settled. A sole owner's company is worse off, because no one has authority to sign payroll or renew the bank line until letters of office issue. A plan replaces each of those defaults with a named person, a fixed price and a source of funds.

They shape it. The fourteen-year installment election under section 6166 is available only if the company exceeds 35 percent of the adjusted gross estate, so a plan that leaves the owner holding a large personal portfolio can price the company out of it. Lifetime gifts of non-voting interests move growth out of the estate at discounted values. An S election survives death only if the receiving trust qualifies within two years. Illinois adds its own estate tax above $4 million, with no portability between spouses. We coordinate the structure with the owner's tax advisers, and where a valuation or an election is examined we represent clients in matters before the IRS. We do not promise a particular result; the facts and the law at the time decide it.