Estate Planning

Legal Matters

Presented by Reif & Hunsaker

Do you own a business or have business interests that you want to transfer to your heirs upon your death? When you are reviewing your estate plan, it is important to address all of your assets, including any shares you own in a corporation and any membership interest you own in a limited liability company. There are a variety of tools that can help a shareholder or member address how they want their interests to be handled upon their death.

• Uniform Transfer on Death Policy

In Oregon, both corporations and limited liability companies (LLCs) are permitted to adopt Uniform Transfer On Death Policies. These policies allow a shareholder or member to designate a primary beneficiary and several alternate beneficiaries of the shareholder or member. After the policy has been adopted and beneficiary forms filed, when an owner dies, their ownership interests automatically transfer to the appropriate beneficiary. There is no need to go through probate or administer a trust. This can allow for a smooth and nearly seamless transition of ownership. Additionally, changing beneficiaries is as simple as filing a new beneficiary form with the company.

• Shareholder Agreement / Operating Agreement

Shareholders of a corporation and members of an LLC can execute agreements that dictate how their shares or membership interest will be handled when they die. In fact, it is strongly recommended that all corporations and LLCs have these types of agreements. These agreements can contain provisions that include (i) a requirement that the company purchase the shares or membership interest (as well as establishing the purchase prices and payment terms); (ii) provide recognition that the shareholder’s or member’s heirs will become the owners; or (iii) permit the ownership of the shares/membership interests be held in a trust.

• Revocable Living Trust

With some limitations related to “sub-S” corporations, shares in a corporation and membership interests in an LLC can be owned by a person’s revocable living trust. Then, when the shareholder/ member dies, the shares or membership interest will be handled by the successor trustee in accordance with the terms of the trust agreement. The trust can provide for keeping the shares/membership interest in the trust and distributing dividends, distributing the shares/ membership interests to the beneficiaries directly, or any number of other varieties of transfers/ownership.

• Will

In Oregon, shares in a corporation and membership interests in an LLC are deemed to be “intangible property.” As such, if not transferred in some other manner (primarily either a Transfer on Death Policy or revocable living trust), it will be transferred to the heirs listed in the owner’s will or, if there is no will, then to the intestate heirs of the owner.

• Inter Vivos Gifting

It is also possible to start gifting your ownership interest to your heirs or beneficiaries now, during your lifetime. There are some complexities related to lifetime gifting (federal gift tax returns, annual gift tax exclusion amounts, lack of a “step-up” in basis, etc.). Nevertheless, this can be a viable and important part of an estate plan.

The information provided in this article does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. If you have specific legal questions, you should seek advice from an attorney.