Chapter 10: Business Interests and Intellectual Property

Why this chapter is shorter on specifics and longer on warnings

Most of this book applies to most families. This chapter is different. If the deceased owned a business of any real size, or held intellectual property with ongoing value, the estate planning complexity goes up by an order of magnitude and requires specialist attorneys, accountants, and business valuers.

I cannot replace those professionals in one chapter. What I can do is tell you what the specialists will want to know, what the most common traps are, and what to document now if you're the business owner doing your own planning. This is a chapter about knowing what you don't know.

Why businesses break so many estates

The core problem: a business is not like a house or a stock portfolio. You cannot simply divide it among heirs. You cannot sell it overnight at market value. You cannot pay property tax and insurance and forget about it.

A business is a living operation. It has employees expecting paychecks, customers expecting service, vendors expecting payment, regulators expecting compliance. If the owner-operator dies and nobody plans for it, the business can collapse within weeks. Employees leave. Customers go to competitors. Receivables go uncollected. Inventory walks out the door.

And from an estate perspective, a business is often the largest asset by paper value — but the hardest to convert to cash, the hardest to value, and the most likely to cause family fights because some heirs want to run it and some want to liquidate.

I have seen a $4 million family business sell for under $500,000 three months after the owner died, because the family couldn't keep it running while they figured out what to do with it. The business itself was fundamentally sound; it just couldn't survive the succession vacuum.

The types of business interests

Not all business interests have the same estate planning profile.

Sole proprietorship. A business owned by one individual, not as a separate entity. Legally, the business is the owner. When the owner dies, the business ceases to exist as a legal entity. The assets (equipment, receivables, inventory) become part of the estate. The brand, customers, and ongoing operations die.

General partnership. Similar to sole prop but with multiple owners. State law governs what happens on a partner's death, often dissolving the partnership unless the partnership agreement says otherwise.

LLC (limited liability company). The deceased's ownership interest passes to heirs per the operating agreement (which MUST have succession provisions), or per the will/trust/beneficiary designation. Depending on the LLC structure, heirs may inherit economic rights but not voting rights, or may inherit full membership.

Corporation (S-corp or C-corp). The deceased's shares pass per the shareholder agreement, the will, or a buy-sell agreement.

Franchise. Franchise agreements often have specific provisions about death — sometimes the franchisor has first-right-of-refusal to reacquire, sometimes the franchise can transfer to qualified heirs, sometimes it terminates at death.

Professional practice (law, medicine, accounting). Often cannot transfer to non-licensed heirs. Usually there's a specific state law governing what happens on the death of a professional practitioner.

Real estate investment partnerships. Often complex partnership structures with their own rules.

Closely-held family business. Usually the hardest category — small enough that there's no formal valuation, big enough to matter financially, emotionally entangled with the family.

Each category requires different planning. What follows applies broadly but is no substitute for entity-specific planning.

The buy-sell agreement — the document every business owner needs

If you own any interest in a business with partners or co-owners, you need a buy-sell agreement. This is the single most important business succession document. Period.

A buy-sell agreement governs what happens to an owner's interest when a "triggering event" occurs. Triggering events typically include:

• Death
• Disability
• Retirement
• Divorce (to prevent the ex-spouse from becoming a co-owner)
• Bankruptcy of an owner
• Voluntary departure
• Involuntary departure (termination)

The agreement specifies:

• Who has the right (or obligation) to buy the departing owner's interest.
• How the interest is valued (formula, appraisal, fixed price).
• How the purchase is financed (often funded by life insurance for death triggers).
• Payment terms (lump sum, installments, etc.).

Three common structures:

Cross-purchase. Each owner owns a life insurance policy on the others. When an owner dies, the surviving owners use the insurance proceeds to buy the deceased's share from the estate.

Entity purchase (stock redemption). The business itself owns life insurance on each owner. When an owner dies, the business buys back the deceased's share from the estate.

Hybrid. Combines elements of both.

Each has tax and cash-flow implications. This is a classic attorney + CPA conversation.

Without a buy-sell agreement, when an owner dies:

• Their interest passes to their heirs (the will, trust, or beneficiary form).
• The heirs are now co-owners of the business with the surviving original owners, whether anyone wants that or not.
• The heirs may have no idea how to run the business.
• The original owners may not want to work with the heirs (or their spouses, or their siblings-in-law).
• Conflicts are guaranteed.

If you are a business owner and you do not have a buy-sell agreement, stop reading this book right now and call your attorney this week.

Valuing a privately-held business

This is, unfortunately, one of the areas where families lose the most money and spend the most on conflict.

Publicly-traded stocks have a clear market price. Private businesses do not. Two owners can value the same business very differently — one at $2 million, one at $5 million — and both can be "reasonable."

For estate planning:

• The IRS cares about business valuation for estate tax purposes (if the estate is large enough).
• Beneficiaries care because their inheritance depends on it.
• The surviving business owners care because they may be obligated to buy out the deceased's share at the valuation.

Types of valuation:

Book value. Total assets minus total liabilities. Easy but usually understates actual value. Rarely used except for very simple businesses.

Market multiple. The business is valued based on a multiple of earnings, revenue, or other metric, benchmarked against similar businesses. Common method.

Discounted cash flow. Present value of projected future cash flows. Complex, used for larger businesses.

Asset-based valuation. Sum of the value of individual assets (equipment, real estate, inventory) minus liabilities.

Independent appraisal. A certified business valuator (ABV or CVA credential) provides a formal valuation opinion. Expensive ($5,000-$25,000 for small businesses, more for larger) but defensible.

For estate purposes, you want an independent appraisal for any business of significant value. The IRS challenges estate tax valuations that look cooked; a real appraisal from a credentialed valuator is your best defense.

Succession: who runs it after you're gone?

If the business is supposed to continue after the owner dies, someone must run it. This is not usually the same person who inherits it. The heir may be a spouse or child with no interest or ability to run the business.

Common patterns:

Spouse inherits, manager runs. Widow inherits 100% of the business but doesn't operate it. A long-time employee is promoted to CEO/manager. Spouse is passive owner collecting distributions. Works well when a capable manager exists and wants the role.

One child inherits operationally, others are compensated. One of the children has been in the business for years and clearly wants to run it. Other children inherit other assets of roughly equal value (the house, investments) so the business can stay with the one who runs it. Requires that the estate has enough other assets to compensate the non-business heirs.

Children inherit jointly, hire a manager. All children inherit equal shares. They hire a professional manager (or promote from within). Requires a strong shareholder/operating agreement and a clear governance structure.

Sell to employees (ESOP or direct). The business is sold to an employee stock ownership plan or to one or more key employees over time. Funded by the cash flow of the business itself. Can be highly tax-advantaged.

Sell to outsiders. Hire an investment banker, find a buyer, sell. The proceeds go to the estate for distribution. Often best for businesses without a natural successor.

The worst default: nobody runs it and it dies. This happens when there's no succession plan, no buy-sell, no willing successor, and no time to find a buyer while the business is still operational.

Life insurance funding

A significant percentage of well-planned business succession relies on life insurance. The most common reason:

Buy-sell agreements need funding. If a partnership has two owners and one dies, the surviving partner is supposed to buy the deceased's share from the estate. Where does the surviving partner get the money? From life insurance on the deceased. The business (or the surviving partner) has been paying premiums for years specifically to fund this moment.

Estate tax obligations. If the estate owes estate tax that it doesn't have liquidity to pay, life insurance on the deceased can fund it without forcing a business liquidation.

Equalization. If one child gets the business and the other child gets cash, life insurance can fund the cash side if other liquid assets are insufficient.

A business owner without adequate life insurance is leaving their business and family exposed. The irony: business owners often think they don't need life insurance because the business is the asset. In fact, the business is exactly why they do need it — to prevent the business from having to be sold in a fire sale at death.

The family business minefield

Family businesses are their own category of complicated. Some of the patterns I see:

The "everybody works here" fallacy. Four children, all working in the business at various levels. Dad dies. Everyone now owns equal shares AND works there, but one of them is clearly more capable than the others. Conflicts are immediate and severe.

The "in-law problem." A daughter-in-law or son-in-law is deeply involved in the business. Whose side are they on in the sibling disputes? If their spouse dies before the parents, do they still have a role?

The "silent child" problem. One child works in the business every day; the other lives across the country and has no role. Both inherit equal shares. The working child resents the outside child's "free ride." The outside child feels cut off from family decisions.

The "trust fund kid" problem. Business provides distributions to all children. One works, others don't. Dynamics deteriorate.

The "aging founder who won't let go" problem. Founder is 78, running the business into the ground, adult children are 45-55 and ready to run it but can't take the reins. By the time the founder dies, the business is damaged and the children are bitter.

None of these have easy solutions. They have managed solutions — frank conversations, structured governance, buy-sell agreements, fair compensation differentials, designated successor, outside advisors (like a family business board). But they don't have solutions that survive benign neglect.

If your family has a business of any significance, the estate planning conversation needs to include the business succession conversation — and it needs to involve all adult children with any connection to the business. Trying to plan in the dark, without involving the people affected, is how businesses die.

Intellectual property

IP has its own set of complications. Brief overview:

Copyrights last 70 years after the author's death (for individual works). If the deceased had written books, songs, software, etc., the copyright passes through the estate. Ongoing royalties continue to heirs.

Patents last 20 years from filing. At death, patents pass to heirs, who can continue to license them and collect royalties.

Trademarks are different — they only persist as long as they are used commercially. An inherited trademark may need continuing use to maintain.

Licensing agreements may or may not survive the licensor's death — depends on the contract.

Royalties from books, music, software, etc. continue to be paid. Heirs need to notify publishers, distributors, and royalty collectors (ASCAP, BMI, SoundExchange, etc.) of the death and of the new recipient.

Trade secrets depend on continued secrecy to be valuable. Who maintains the trade secret after the owner's death? This is a succession planning issue.

If the deceased owned meaningful IP, an IP attorney should be involved in estate administration. Otherwise, significant ongoing revenue streams can be lost.

Specific professional practices

Some professions have specific death-of-practitioner laws.

Attorneys. State bar rules govern what happens to a deceased attorney's client files, trust account money, and open cases. A "successor attorney" typically takes over. The practice itself (as a business) rarely has transferable value to non-attorneys.

Doctors. Medical practices face regulatory issues about patient records, controlled substances, DEA licenses. The practice (and its equipment, receivables) has value, but continuity is difficult without another licensed doctor.

Accountants, architects, engineers. Similar issues to attorneys and doctors — licensure matters, files need handoff.

Real estate agents (like me). State licensure matters for active transactions. Brokers have specific procedures for reassigning in-progress transactions.

Financial advisors. FINRA has rules about continuity. Many advisors have "book of business" agreements that provide for succession to another advisor.

If you are a licensed professional, your estate plan should include a succession plan specific to your profession. Your professional association often has resources.

Digital businesses — the category blurs

Increasingly, businesses live online (see Chapter 9). A YouTube channel with a million subscribers is a business. A Substack with 5,000 paid subscribers is a business. An Amazon FBA storefront is a business.

These face the same succession questions as traditional businesses but with additional digital-access complications:

• Who has login credentials to keep the business running?
• Who has banking access to receive revenue?
• Can the platform transfer the business to an heir?
• Is there an ongoing customer service need that requires a live human?

Plan for digital business succession with the same rigor as traditional business succession.

What to do this week

If you own a business (any size):

1. Talk to a business attorney and CPA about succession planning if you don't have a plan in place.
2. Draft a buy-sell agreement if you have co-owners and don't have one.
3. Get a current business valuation if you haven't had one in the last 3-5 years.
4. Identify a successor (for operations) and communicate with them.
5. Ensure adequate life insurance funds the buy-sell or provides liquidity.
6. Document everything someone would need to know to run or sell the business: customers, vendors, contracts, bank accounts, software logins, key employees.
7. Coordinate business plan with overall estate plan. The will, trust, and business documents must work together.

If a parent owned a business and has died:

1. Stabilize first. Keep the business running in the first 30-90 days. Employees, customers, bills. Don't make major decisions yet.
2. Engage specialists. Business attorney, CPA specializing in estates, potentially a business broker or investment banker.
3. Get a valuation done immediately for both tax and distribution purposes.
4. Review any buy-sell agreement to understand what's required.
5. Have the family conversation about what to do with the business — continue, sell, transition to one heir.
6. Do not rush to sell unless the business is truly unsalvageable. Proper sale takes 6-12 months at minimum.

If you're planning an estate and family has no business involvement:

You can mostly skip this chapter. But be aware: if you're a professional, freelancer, or creator with ongoing income streams (royalties, affiliate revenue, online sales), you do have a "business" even if it doesn't feel like one — and Chapter 9's digital asset planning applies.

Next chapter: the first 24 hours after a death. What to do when someone you love just died and you are suddenly, unprepared, the person who has to make decisions. This chapter is the one that's bookmarked in most of the copies of this book that get actually used.