Estate Planning for Entrepreneurs: Protecting What You Built

If you built a company from nothing, you already know that most generic estate planning advice was not written with you in mind. A will that leaves “everything to my spouse” says nothing about who signs payroll checks next Friday, who has authority to vote your LLC membership units, or what happens to your unvested option grant if you are hit by a bus before the next vesting date. For a W-2 employee with a 401(k) and a house, a simple will might be adequate. For a founder, it is close to useless, and in some cases it is dangerous, because it guarantees a probate court will be the entity making decisions about your business while your family and your co-founders wait.

This page walks through the estate planning issues that are specific to entrepreneurs: entity structure, trust funding for business interests, buy-sell agreements, key-person insurance, intellectual property, equity compensation, incapacity planning, and the tax mechanics of gifting versus inheriting a business. None of this replaces a conversation with an attorney who has actually read your operating agreement, your cap table, and your buy-sell agreement, but it will tell you what questions to ask and what gaps to look for.

Why Entrepreneurs Need Estate Planning Beyond a Basic Will

A will only controls property after it passes through probate, and probate is a public, court-supervised process that typically takes 12 to 18 months in California. For a business, that timeline is not a paperwork inconvenience. It is a business risk. Vendors want to know who can sign a renewed contract. Banks want to know who has signing authority on the operating account. Employees want to know who is making payroll decisions. Investors want to know who controls the cap table. A probate court does not answer any of these questions quickly, and until an executor is appointed, letters testamentary are issued, and authority is confirmed, the business is functionally rudderless.

A revocable living trust avoids this entirely, because a properly funded trust does not go through probate. The named successor trustee has immediate legal authority to act the moment incapacity or death is documented, without waiting for a court. For a business owner, that immediacy is the entire point. The tools are the same tools a retiree uses, but the stakes and the details are different: what gets assigned into the trust, how the operating agreement treats the transfer, and how the successor trustee actually runs (or sells) the business are all entrepreneur-specific problems that a generic estate plan will not address.

Entity Structure and Estate Planning

How your company is organized changes what your estate plan needs to accomplish, and the differences are not cosmetic.

Sole proprietorship. If you never formed an entity, there is no legal separation between you and the business. Every asset, contract, and liability is personal property, which means it is part of your probate estate unless it is retitled into a trust. There is also no liability shield, so a lawsuit against “the business” is a lawsuit against you personally, and your estate inherits that exposure along with everything else.

LLC. Membership interests are personal property that can be assigned to a revocable trust, typically through a simple assignment of membership interest. Most operating agreements permit transfers to the member’s own revocable trust without triggering the consent requirements that apply to transfers to third parties, but do not assume this. Read the transfer restriction section of the operating agreement before you assume the assignment is clean, and amend the agreement if it is silent or restrictive.

S corporation. This is where founders get tripped up. Under IRC § 1361, S corporations can only have eligible shareholders: individuals, certain trusts, and estates. A standard revocable trust qualifies as an eligible shareholder while you are alive, because it is a grantor trust. The trap is what happens after you die. The trust remains an eligible S-corp shareholder for only two years after death under IRC § 1361(c)(2)(A)(ii), unless it makes a timely qualified subchapter S trust (QSST) or electing small business trust (ESBT) election within that window. Miss the deadline and the company’s S election terminates, converting it to a C corporation, often with unpleasant tax consequences for everyone. If you run an S corp, your estate plan needs to name a trustee and tax advisor who know this deadline exists.

C corporation. No shareholder eligibility restrictions apply, so a trust can hold C-corp stock indefinitely without any special election. C-corp status is also the only entity type eligible for the qualified small business stock exclusion under IRC § 1202, which can matter significantly if you plan to sell or if your heirs eventually will.

The Revocable Living Trust for Business Owners

A trust only protects what is actually inside it. “Funding” the trust with business interests means executing an assignment of membership interest (for an LLC), an assignment of partnership interest, or a stock power and share reissuance (for corporate stock), and then updating the company’s own books and records, capitalization table, and operating agreement or stock ledger to reflect the trust as the record owner. An unfunded trust is a expensive piece of paper that accomplishes nothing at death, because unfunded assets still go through probate regardless of what the trust document says.

For founders, funding is not a one-time event. Every time you issue yourself new units, exercise an option, or restructure the cap table, the new interest needs to land in the trust, not in your individual name. This is the single most common gap Ridley Law finds when reviewing an entrepreneur’s existing plan: the trust was funded correctly at signing, and then three financing rounds and a corporate restructuring later, half the founder’s equity is sitting outside the trust in individual name.

Buy-Sell Agreements and the Estate Plan

If you have co-founders or other owners, a buy-sell agreement should exist and should be coordinated with your personal estate plan, not treated as a separate document that nobody has reconciled against the other. A buy-sell agreement controls what happens to an owner’s interest when a triggering event occurs (death, disability, divorce, bankruptcy, voluntary departure). Your estate plan controls where your personal assets go. Both documents need to say the same thing about your business interest, or you have created a conflict that a court, not your family, will resolve.

Two structures are common. A cross-purchase agreement has the surviving owners personally buy the deceased owner’s interest, which gives the survivors a new, stepped-up basis in the purchased interest. An entity redemption agreement has the company itself buy back the interest, which is administratively simpler with more than two or three owners but raises basis and, for S corporations, IRC § 302 dividend-treatment issues that need to be modeled before you pick this structure.

Buy-sell agreements are almost always funded with life insurance, precisely so the surviving owners or the company are not forced to liquidate business assets or take on debt to buy out a deceased owner’s family. The agreement’s valuation mechanism (fixed price, formula clause, or appraisal at the time of the triggering event) should also be reviewed periodically. A price fixed five years ago at a startup’s Series A valuation is not a credible valuation today, and stale numbers create fights among the people you least want fighting: your co-founders and your surviving spouse.

Key-Person Insurance and Succession Planning

Key-person insurance and buy-sell insurance solve different problems and are frequently confused. Key-person insurance is owned by and payable to the company, and it compensates the business for the disruption, lost revenue, and recruiting cost of losing a critical founder or executive. Buy-sell insurance is structured to fund the purchase of a departing owner’s equity interest under the buy-sell agreement, and is payable to the company or the other owners depending on the structure chosen above. Many founders have one and assume it covers both purposes. It usually does not.

Succession planning is the harder, less document-driven half of this. Investors and lenders want to know that the business survives the founder, not just that the founder’s family gets paid. If you are the only person who understands the product roadmap, holds the key customer relationships, or has signing authority with the bank, start identifying and developing a successor now, before it is needed. This is especially acute for technical founders at early-stage companies, where the sudden loss of the person investors backed can crater confidence in the business independent of any legal or financial mechanics.

Intellectual Property and the Estate

Patents, trademarks, trade secrets, and copyrights are estate assets, and each has quirks that a generic estate plan will miss.

Patents. Ownership passes like any other property interest, but assignments need to be recorded with the USPTO to preserve a clean chain of title. If a patent was invented by you personally before you assigned it to the company, confirm that assignment actually happened and was recorded; “the company obviously owns it” is not a legal conclusion a buyer’s due diligence team will accept.

Trademarks. A trademark cannot be transferred separately from the goodwill of the business it represents. Splitting the mark from the business creates a “naked license” problem that can jeopardize the mark’s validity. Make sure any estate planning transfer of a trademark moves with the associated business, not as a standalone asset.

Trade secrets. Confidentiality is the entire value of a trade secret, and a successor trustee who is not otherwise bound by confidentiality obligations creates real exposure. Your estate plan and any trust administration instructions should require the successor trustee to sign appropriate confidentiality agreements before gaining access to trade secret material.

Copyrights. Federal copyright law gives authors (and their heirs) statutory termination rights under 17 U.S.C. §§ 203 and 304, allowing a prior grant or license of copyright to be terminated after a set number of years regardless of what the original contract said. If you licensed or assigned IP earlier in your company’s history, understand how these termination rights interact with your current ownership structure, because they can resurface decades later in your heirs’ hands.

Stock Options, RSUs, and Equity Compensation at Death

Equity compensation is usually held in an individual brokerage or plan administrator account, not automatically inside your revocable trust, and plan documents frequently restrict lifetime transfers. This means beneficiary designations and the specific terms of your grant agreements matter as much as your trust document.

Incentive stock options (ISOs). IRC § 421(c) provides a special rule that relaxes some ISO qualification requirements, including the post-termination exercise window, when the option is exercised by an estate or a person who acquired the right by bequest or inheritance. That statutory relief does not override the plan document’s own expiration terms, so someone needs to check the actual plan for its post-death exercise window, which is often extended but is not automatic or uniform across companies.

Non-qualified stock options (NSOs). These carry no special death treatment. The spread between fair market value and strike price is ordinary income on exercise, whoever exercises them, and if the right existed at death it can be treated as income in respect of a decedent, meaning it retains its ordinary income character rather than receiving a basis step-up.

RSUs. Unvested RSUs are typically forfeited at death unless the award agreement contains a death-acceleration provision. This is a negotiation to have at the time of grant, not a problem to discover after the fact. If you are still negotiating offer terms or new grants, ask specifically about death and disability acceleration, sometimes called single-trigger or double-trigger vesting.

Incapacity Planning for Entrepreneurs

Death is not the only risk. A stroke, an accident, or a medical crisis that leaves you unable to make decisions is arguably the more common and more disruptive scenario, because the business keeps running and someone has to make decisions while you are alive but unable to act.

A generic durable power of attorney often lacks specific language authorizing the agent to sign corporate or LLC documents, execute contracts, manage payroll, access business bank accounts, or exercise your voting and membership rights. Without that specific authority, your agent may find a bank or a counterparty refusing to honor the document at exactly the moment authority is needed. Your power of attorney should explicitly grant business-related powers, not rely on broad “general authority” language that a third party’s compliance department may reject.

Your successor trustee selection deserves the same scrutiny. A spouse or adult child who has never run a business may not be the right person to step in as trustee of an entity holding an operating company, even if they are the right person to inherit the value of that business eventually. Many founders name a business-savvy successor trustee, or pair a family member with a professional co-trustee for oversight. If your company has outside investors, your corporate governance documents (board provisions addressing incapacity, voting proxies) need separate attention from your personal estate plan; they are not the same document and do not automatically track each other.

Tax Planning: Gift Versus Inheritance of Business Interests

Whether you transfer business ownership during life or let it pass at death changes the tax basis your recipients get, and the difference can be enormous for an asset that has appreciated substantially.

Lifetime gift. Under IRC § 1015, the recipient of a lifetime gift takes your carryover basis, meaning your original cost basis, not the current fair market value. No step-up occurs. The advantage is that gifting removes future appreciation from your taxable estate and lets you use your annual exclusion ($19,000 per recipient, $38,000 for a married couple splitting gifts in 2026) or your lifetime exemption ($15,000,000 per person, $30,000,000 married, permanent under the One Big Beautiful Bill Act).

Inheritance at death. Under IRC § 1014, an heir receives a basis equal to the fair market value on your date of death, eliminating the built-in gain entirely. Given the current $15 million federal exemption, most entrepreneurs will owe no federal estate tax regardless of which path they choose, which means for most founders the “hold until death” strategy wins on basis alone: your heirs sell with little or no built-in gain, and you never triggered estate tax by holding the appreciated asset.

Retained interest exposure under § 2036. If you gift business interests but retain effective control, income rights, or continued enjoyment of the property, IRC § 2036 can pull the full value of the gifted interest back into your gross estate at death, defeating the purpose of the gift. This issue shows up most often with family-controlled entities used to hold business interests, where the founder gifts non-voting units to children or a family trust but keeps signing authority, draws a salary well above market rate, or otherwise behaves as if nothing changed. Any gifting strategy involving family-controlled entities needs to be structured, and operated, at arm’s length.

Valuation discounts. Minority, non-controlling interests in a closely held business can often be gifted at a discounted value, reflecting a discount for lack of control and a discount for lack of marketability. A common technique gifts non-voting units to family members or trusts while the founder retains voting units, leveraging the discounted value against the annual exclusion and lifetime exemption. This requires a qualified independent appraisal and a structure that will hold up to IRS scrutiny; a discount claimed without supporting documentation is an audit invitation, not a tax strategy.

Figures verified July 2026.

Frequently Asked Questions

Does my LLC or corporation already protect my heirs from probate?
No. Your membership interest or shares are personal property. They pass through probate like any other individually owned asset unless you have assigned them into a properly funded revocable trust.

What happens to my company’s bank accounts if I become incapacitated?
Without a durable power of attorney that specifically authorizes business acts, signing authority is frozen at exactly the moment your business needs someone to act. A funded trust with a named successor trustee, paired with a business-specific power of attorney, closes this gap.

Do I need a buy-sell agreement if I already have a revocable trust?
Yes. They serve different functions. The buy-sell agreement controls the transaction between owners when someone dies, becomes disabled, or leaves. Your trust controls where your personal assets, including your business interest, go after that transaction concludes. Both need to say the same thing.

Can my heirs keep my S-corp election after I die?
Only if the trust holding the stock qualifies as an eligible shareholder, which generally means making a timely QSST or ESBT election within two years of death. Miss that window and the S election can terminate.

What happens to my unvested stock options or RSUs if I die before they vest?
Absent a specific acceleration provision in the plan document or your grant agreement, unvested equity is typically forfeited. This needs to be negotiated at the time of grant.

Should I gift my company to my kids now, or let them inherit it?
It depends on your basis, how much of your exemption you want to use now, and how much control you want to retain. Gifting during life uses your carryover basis and no step-up; inheritance gets a full step-up to date-of-death value under current law. For most founders below the $15 million federal exemption, holding until death is more basis-efficient, but control and business-succession timing can outweigh the tax math.

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