Corporate lawyers and estate planning lawyers both play key, but different, roles in the success of business clients. Corporate attorneys typically help businesses choose the proper legal structure, navigate the complexities that come with growth, manage risk, ensure proper governance, document key agreements, and negotiate and draft complex transactions—including those related to liquidity events such as mergers and sales.

Estate planners help to ensure that property is distributed correctly at death, to achieve client’s tax, business, and charitable goals by minimizing estate or gift taxes, transitioning a company to the next generation of owners, evaluating and implementing charitable giving strategies, and protecting intended beneficiaries. Additionally, they help plan for the owner’s incapacity, nominate guardians for minor children, and avoid probate delays. Estate planners possess a unique skill set to help business owners navigate estate and gift tax considerations, charitable planning, gifting, and other related areas.

The fields of corporate and estate planning are distinct, but they both impact a business owner and their enterprise. Because it is unusual to find a single attorney who can handle both estate planning and corporate work at a high level, it is important that the involved attorneys coordinate the corporate legal work with the estate plan. Failure to align the business structure and succession plan with the owners’ estate plans can have adverse effects for both the owners and their business.

The following are some common examples of misalignment among the business structure and corporate documents, and the owners’ estate planning:

1. The Buy-Sell Agreement is not aligned with the estate plan. The company buy-sell agreement—a document among the owners of a business that addresses transfers of ownership interests and control upon certain events—is perhaps the most crucial document where the corporate and estate planning worlds meet. Many buy-sell agreements provide for some transfer rights in the event of death, disability, or incompetency. Often, those agreements do not contain detailed definitions of disability or incompetency, or the definitions are inconsistent with how those situations are addressed in the estate plan. For example, a buy-sell agreement may provide that an owner is deemed incapacitated only if a court grants a guardianship or conservatorship concerning to the owner, whereas the estate plan may define incapacity to include a determination by a family member or a physician that the person is unable to effectively manage their own financial affairs. Another area of frequent misalignment relates to transfers for estate planning purposes. Many buy-sell agreements allow owners to make transfers for estate planning, including to trusts. However, trusts come in many different types, with vastly different results in how they are controlled. For example, a person who creates a revocable trust, which is primarily used to avoid probate, retains the right to amend the trust, including determining who will serve as trustee. Alternatively, the person who creates an irrevocable trust usually retains no powers over the administration of the trust. The trustee of the revocable trust or irrevocable trust is the person with the authority to vote the business ownership interests that are transferred to the trust, not the person who creates the trust or the trust’s beneficiaries. The buy-sell agreement may restrict subsequent changes to trusts or transfers out of trusts when those events are contemplated as part of the estate plan. This can result in the sale of the trust’s ownership rather than the trust’s ownership being distributed to the intended recipients. It can be important for a corporate attorney to understand the type of trusts that owners may have, and how the trust assets will be managed upon the grantor’s death or changes to the trustees, so that outcomes under the buy-sell agreement are consistent with the intended effect of the estate plan.
2. The valuation methodology is not consistent with the estate plan. It is common for owners to obtain valuations of their business interests for gifting purposes. Often, the buy-sell agreement includes a different valuation mechanism for buyouts triggered by death, disability, termination of employment, or other specified events, than the valuation used for gifting. For example, the buy-sell agreement may determine that there will be no discounts for lack of marketability or minority interests. However, the value of assets for estate and gift tax purposes may allow the consideration of those types of discounts in determining the value of ownership interest. The result is that the decedent’s estate may pay more in estate taxes if discounts are not allowed to be taken into consideration for the buy-sell agreement. The possibility of such outcomes often warrants consideration when drafting a buy-sell agreement.
3. Life insurance and purchase structures are not in alignment. Many buy-sell agreements contain provisions that allow other owners to purchase or the company to redeem ownership upon death, disability, termination of employment, and other triggers. For estate tax purposes, Code § 2703(b)(3) provides that the terms of a buy-sell agreement must be “comparable to similar arrangements entered into by persons in an arm’s-length transaction.” Sometimes, the company maintains life insurance on the owners to fund those buyouts. The U.S. Supreme Court, in the landmark Connelly decision issued June 6, 2025, affirmed that a company’s contractual obligation to redeem shares at fair market value does not reduce the value of the company for estate tax purposes when the company receives life insurance proceeds at an owner’s death. This decision underscores the importance of carefully examining the buy-sell structure to prevent life insurance proceeds from increasing the taxable value of the company upon an owner’s death. In many cases, it will be prudent to draft cross-purchase agreements where company owners purchase life insurance on each other and use those proceeds to purchase the decedent’s interest directly, rather than a mandatory company redemption structure with company-owned life insurance. We also expect that the use of separate LLCs to hold life insurance policies and fund cross-purchases by owners of the operating company will increase following the Connelly decision.
4. Estate plan contemplates dispositions that are not permitted by the corporate structure. A purported transfer of a business interest under an owner’s estate planning documents may violate the transfer restrictions in the buy-sell agreement or imposed by the company structure. S-Corporation ownership is generally restricted to natural persons (who are U.S. citizens or residents) and specific qualified trusts and entities. It is common for a business owner to establish a trust that is not qualified to hold Subchapter-S stock and for that trust to acquire the company’s shares. Violating these restrictions can lead to the termination of Subchapter-S status and undesired consequences for the company and its owners.

   Additionally, companies providing professional services, such as engineering, legal services, accounting, medicine, or dentistry, are typically owned only by individuals holding a license to practice the particular profession. Other businesses have licenses explicitly tied to the background and experience of current owners, such as alcohol, cannabis, and other regulated industries. It may not be possible to transfer ownership of those companies to beneficiaries of an estate plan without re-licensing or other steps that require planning. Those restrictions can be relevant to the estate plan and the corporate documents.

5. Estate plan does not provide a workable structure for the next generation of owners. Many parents want to leave their estates in equal shares to their children, with a possible result being that two children each end up with 50% of the family business’s interest. However, if the company governing documents require a majority vote and contain no mechanism for breaking a deadlock, or no mechanism for a child to exit the business if desired, that can lead to negative consequences for the company. Similarly, if multiple beneficiaries assume ownership, and the structure allows a single owner to block company action, it may be difficult for the company to make sound decisions. Owners of a family business that want to set their beneficiaries up for success when taking over the business may want to develop a thoughtful governance and buy-sell structure, and including this as part of any transition plan or distribution upon death.
6. Corporate documents do not make appropriate use of Transfer on Death (TOD) designations. When the owner of a company dies, who is paid when the deceased’s stock is repurchased? That may sound like a simple question, but in many cases, it’s not. Upon death, an owner’s ownership interests often become part of their estate, requiring the ownership interests to go through a probate process administered by a representative of the estate. That process can be avoided by using Transfer on Death (TOD) designations that register an owner’s interests with a designated death beneficiary. The designation of a TOD beneficiary has ‎no effect on ownership of the stock until the owner’s death. At death, the ownership interests pass to and are re-registered in the name of the primary beneficiary or beneficiaries who survive the owner. Any ownership interest with a TOD beneficiary remains subject to the terms of any ‎buy-sell agreement or shareholders’ agreement governing such ownership interests, allowing the company and/or ‎owners to purchase the ownership interests from the TOD beneficiary under the terms of that agreement. By creating a clear path for who sells and gets paid in the buyback of an owner’s ownership interests upon death, the TOD registration process can create certainty and efficiency for both the company and its owners if properly integrated into the company’s corporate documents.

Effective corporate governance and succession planning can require careful coordination between the company’s legal advisors and the owner’s estate planners. The stakes can be high if there is misalignment in the corporate structure and estate planning goals of the owners. Schwabe’s PHBE team comprises knowledgeable corporate and estate planning attorneys with experience collaborating to assist clients in navigating the complexities of estate planning, business succession planning, and company governance.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice with regard to your situation, you should contact an attorney.