Running a business demands constant attention. Estate planning often gets pushed aside in the process. But if you pass away without a clear plan for your business, the consequences for your loved ones and your life's work can be significant.
The bottom line: How your business passes to your heirs depends on its structure, whether you have a valid will, and whether you have taken steps to keep it out of probate. Planning ahead with an experienced Killeen estate planning attorney is the most reliable way to protect both your business and your family.
Key Takeaways
Without a valid will, Texas intestacy laws control how your business and other assets are distributed.
How your business is treated in probate depends heavily on its legal structure.
Sole proprietorships, single-member LLCs, multi-member LLCs, and corporations each face different rules.
Several tools can help keep your business out of probate entirely, including buy-sell agreements, trusts, and operating agreements.
Texas intestate succession rules are complex and may not reflect your wishes.
Working with a Killeen estate planning attorney is the surest way to protect your business and your heirs.
If You Pass Without a Will
Dying without a valid will means your estate is considered intestate, and Texas intestacy laws determine how your assets are distributed. Under this framework, your assets generally pass to survivors in the following order of priority:
Your surviving spouse and children
Your parents
Your siblings
Other surviving relatives
When a business is part of your estate, how it passes to your heirs will largely depend on its legal structure.
How Business Structure Affects Inheritance
Sole Proprietorship
If your business is a sole proprietorship, it will flow directly to your heirs in undivided interests. Unlike most other business structures, a sole proprietorship is not a separate legal entity. In effect, the business dies with its owner.
Key points to understand:
The estate itself cannot own or operate the business.
The estate is responsible for winding down the business and fulfilling existing contracts.
If the owner must hold a specific license, the court may appoint a temporary operator, ultimately leading to dissolution and liquidation of assets to cover outstanding debts.
Personal wealth and business assets are often closely intertwined in a sole proprietorship, which makes legal guidance especially important.
Heirs can form a new business entity to continue the business going forward, but the original entity does not survive.
Single-Member LLC
Several factors determine what happens to a single-member LLC during probate:
If an operating agreement names a successor, the business is more likely to remain in operation after your passing.
Without an operating agreement, the estate administrator assigned by the court will determine next steps, which may include continuing operations or taking another course of action.
Your heirs will inherit your interest in the LLC but will not automatically inherit the right to manage it.
Heirs generally have a 90-day window to seek probate court approval to continue running the LLC. If that window is missed, the asset proceeds through the standard probate process.
Multi-Member LLC
Because a multi-member LLC involves other members, it is less likely to dissolve as a result of one member's death. These businesses typically have provisions in the operating agreement that define what happens when a member passes away.
If no such provisions exist and no will addresses the matter, intestacy laws apply and your interest flows to your heirs. At that point, heirs will be classified as either:
Assignees who retain certain rights and responsibilities, or
Members who receive an actual ownership stake in the business
Heirs will have one year to settle any applicable inheritance taxes and retain the right to sell their shares, potentially to someone outside the partnership. A carefully crafted operating agreement, working in tandem with a business succession plan and your will, is the most effective way to ensure your ownership passes according to your wishes.
S Corporation or C Corporation
S corporations pass corporate income, losses, credits, and deductions through to shareholders' personal tax returns, avoiding double taxation. C corporations are taxed separately from their owners, meaning double taxation can apply.
For both structures, because multiple managers, directors, shareholders, and members may be involved, the business is unlikely to dissolve automatically upon your death. Depending on the circumstances, your heirs may become assignees or have your interests transferred to them.
If you are the sole shareholder of an S or C corporation, your estate will become the temporary owner until shares are distributed to your heirs or the business is dissolved.
Texas Intestate Succession: The Key Rules
Texas intestate succession law is complex and hinges on the distinction between community property and separate property.
Community property refers to assets you, your spouse, or both of you acquired during your marriage, with the exception of inheritances, gifts received individually, and the pain and suffering portion of any personal injury settlement received during the marriage.
Separate property refers to assets either of you owned before marriage and kept separate throughout.
How Texas intestate succession generally works:
Children but no spouse: children inherit everything
Spouse but no children: spouse inherits everything
Parents but no spouse or children: parents inherit everything
Spouse and parents only: spouse receives all community property, all separate personal property, and half of separate real estate; parents inherit the rest
Siblings but no spouse, children, or parents: siblings inherit everything
One surviving parent and siblings but no spouse: parent inherits half; siblings share the remaining half
Spouse and siblings but no children: spouse receives all community property, all separate personal property, and half of separate real estate; siblings inherit the rest
Spouse and children together: spouse inherits all community property plus one-third of separate personal assets and the right to use the shared primary residence and one-third of remaining separate real estate for life; children inherit everything else
Spouse and at least one child from another relationship: spouse receives half of community property, one-third of separate property, and the right to use the shared primary home and one-third of separate real estate for life; children receive everything else, including your half of the community property
Intestate inheritance may not reflect your actual wishes. Proactive estate planning is always the better path.
If You Have a Valid Will
A valid will gives you control over how your assets are distributed, including your business. However, for business interests specifically, there are often more effective tools available that can bypass probate entirely.
Tools to Keep Your Business Out of Probate
Probate can be both lengthy and costly, and in some cases may require dissolving the business you have worked hard to build. Several planning tools can help avoid probate.
Buy-Sell Agreements
Common in partnerships and corporations, buy-sell agreements outline how ownership stakes will be transferred upon a member's death. They typically allow remaining partners to purchase the deceased member's interest, keeping those shares out of probate.
Trusts
LLCs are often placed in revocable trusts, which transfers ownership directly to the trust. Assets held in trust are not considered part of the original owner's estate at death and do not go through probate.
Operating Agreements
Most partnership-based businesses include operating agreements that define how ownership stakes transfer when a partner dies. Like buy-sell agreements, these documents guide the transfer of shares when the time comes.
Joint Ownership with Right of Survivorship
When a business is jointly owned with rights of survivorship, ownership passes automatically to the surviving owner upon the other's death, bypassing probate entirely.
Transfer-on-Death Accounts
Transfer-on-death accounts allow you to designate beneficiaries who will inherit assets directly at the time of your passing, bypassing probate. While commonly used for investments and bank accounts, these accounts can also be effective for sole proprietorships and LLCs.
Ready to Protect Your Business and Your Family?
Estate planning is complex under any circumstances. When a business is involved, the stakes are higher and the planning more involved. Brett Pritchard at the Law Office of Brett H. Pritchard in Killeen, Texas, is a trusted estate planning attorney who will work diligently to protect both your business investment and your loved ones.
Call (254) 781-4222 or contact us online to schedule a FREE consultation today.
Frequently Asked Questions
What happens to my business if I die without a will in Texas?
Your estate is considered intestate and Texas intestacy laws determine how your assets are distributed. How your business specifically passes to your heirs will depend on its legal structure, the existence of any operating agreements, and the order of priority established by Texas law.
Does a sole proprietorship survive the death of its owner in Texas?
No. A sole proprietorship is not a separate legal entity and does not survive its owner's death. The estate is responsible for winding down the business and fulfilling existing contracts. Heirs can form a new business entity to continue operations, but the original business does not survive.
What happens to a single-member LLC when the owner dies?
If an operating agreement names a successor, the business is more likely to continue operating. Without one, the estate administrator determines next steps. Heirs inherit the owner's interest but not automatically the right to manage the LLC, and they generally have a 90-day window to seek court approval to continue operations.
How can I keep my business out of probate in Texas?
Several tools can help, including buy-sell agreements, revocable trusts, operating agreements, joint ownership with right of survivorship, and transfer-on-death accounts. An experienced estate planning attorney can help you determine which combination best fits your situation.
What is the difference between community property and separate property in Texas?
Community property refers to assets acquired during marriage, with limited exceptions for inheritances, individual gifts, and the pain and suffering portion of personal injury settlements. Separate property refers to assets owned before marriage and kept separate throughout. This distinction significantly affects how assets are distributed under Texas intestacy laws.
How do I get started with business estate planning in Killeen, TX?
Contact the Law Office of Brett H. Pritchard to schedule a FREE consultation. Brett Pritchard is a trusted estate planning attorney ready to help you protect your business and ensure your wishes are honored. Call (254) 781-4222 or contact us online today.