If you own a small business, your estate plan has two jobs: protect your family and protect the company. A well‑built plan keeps payroll running, preserves customer relationships, and turns your hard‑won equity into dollars for the people you love. This article explains the pieces—buy‑sell agreements, operating/shareholder provisions, key‑person and buy‑out insurance, and a revocable living trust for ownership continuity—so your business survives a crisis rather than becoming one.

Start where companies actually break: authority and cash

When an owner dies or is incapacitated, two failures cause most damage: no one has authority to sign, and there is no cash to buy out the interest or fund a replacement. Solve authority with documents; solve cash with insurance and a realistic buy‑sell.

• Authority: If your ownership sits in your personal name, your family must navigate probate or rely on a bank‑skeptical power of attorney to sign contracts. A revocable living trust avoids that: you assign or transfer your LLC membership interest or corporate stock to your trust now. If you are incapacitated, your successor trustee can act immediately; at death, the trustee follows your instructions without court delay.

• Cash: A buy‑sell agreement—cross‑purchase or entity redemption—sets price, terms, and funding for a buyout on death, disability, or retirement. Fund it with life insurance (for death), disability buy‑out coverage (for qualifying disability), or structured terms backed by collateral if insurance is unavailable.

Align your operating documents with your plan

Your LLC operating agreement or shareholders’ agreement likely restricts transfers. That’s good governance—but it can collide with your estate planning if not coordinated. Update the agreement to (a) permit transfers to a revocable trust, (b) recognize your successor trustee as the person who can exercise your rights during incapacity and administration, and (c) incorporate or reference the buy‑sell terms so all documents sing the same tune.

If you run an S corporation, remember S‑status eligibility. Your revocable trust qualifies while you are alive and for a limited period after; beyond that, the trust needs to meet electing trust rules or the stock must move to a qualifying beneficiary. This is a drafting detail, not a deal‑breaker—flag it so the trust remains an eligible shareholder.

The buy‑sell: price, trigger events, and practical mechanics

A buy‑sell answers five questions: When must or may the company/other owners buy your shares (death, disability, divorce, deadlock, voluntary exit)? Who buys (the company or remaining owners)? How is price set (fixed amount updated annually, formula tied to EBITDA or revenue, or independent valuation)? How is the buyout funded (insurance, cash, note)? What happens if someone refuses (specific performance; remedies in court; penalties)?

For most small companies, a triggered buyout at death and long‑term disability is mandatory; the rest are may‑buy events. Price should be revisited annually—put “valuation update” on the same calendar day you review beneficiary designations. If insurance is the funding source, keep policies in force and beneficiary designations correct (entity redemption → company is beneficiary; cross‑purchase → co‑owners are beneficiaries). Your trust should direct how sale proceeds flow to your family—outright, in a children’s trust, or with spendthrift protections.

Key‑person coverage and management continuity

If you are essential to revenue, the company needs key‑person insurance—a policy the business owns on your life, paying to the business. The proceeds bridge months of lower sales, recruiter fees, and customer reassurance. Separately, build an emergency management plan: name a person who can sign checks, negotiate with lenders, and talk to customers for ninety days. Put their name and the successor trustee’s name in the bank’s file now, not after the crisis.

Titling ownership to your trust (and what to hand your trustee)

Move your ownership into your revocable living trust with (1) an assignment of membership interest for an LLC or a stock transfer for a corporation; (2) updated company records (cap table, membership ledger); and (3) a certificate of trust on file with your bank and, if relevant, with your lender. Put a one‑page “how the business works” brief in your trust binder: key accounts, payroll service, top customers, vendor contacts, and renewal dates for critical contracts. Your successor trustee will not know these by osmosis.

Real estate and equipment: what happens in a sale

If your company leases space from you personally or from a separate LLC, decide what happens if you die: does the company have an option to purchase or a right of first refusal? Is rent fixed for a transition period? Spell that out so your trustee and your co‑owners don’t renegotiate in a panic. For financed equipment personally guaranteed by you, maintain a file of guarantees and lender contacts so your trustee can coordinate releases or replacements.

Taxes and what your fiduciaries should expect

Most small estates fall below federal estate‑tax thresholds; the larger issue is income tax on a buyout and the character of payments (capital gain vs ordinary). Your executor or trustee should hire a preparer who understands buy‑sell taxation so your family isn’t surprised next April. If your company is an S corp, basis adjustments matter to surviving owners; your documents should keep S‑status safe while ownership shifts under the buy‑sell.

If you have no partners: plan for management, then for sale

Solo owners need a different script: an employment/consulting agreement that lets a key employee or outside manager operate the business for six to twelve months under trustee oversight; an agreed broker or M&A contact to sell the company; and clear pricing expectations. Your trust should authorize your successor trustee to continue the business temporarily, pay bonuses tied to retention or sale, and close the entity if that’s the correct outcome.

The personal side: spouse/partner expectations and liquidity

Tell your spouse or partner what the buy‑sell promises and what insurance exists. If a buyout will be partly on a note, make sure household cash flow is realistic while you wait on payments. Consider life insurance beyond the buy‑sell to cover personal debt or college funding. Your goal is to keep business complexity from becoming family fragility.

Your one‑week action plan

Review and update your operating/shareholder agreement (transfer to trust permitted; successor trustee recognized). Finalize or refresh your buy‑sell with current price and insured funding. Transfer ownership to your revocable living trust and lodge a certificate of trust with the bank. Update beneficiary designations on any policies connected to the plan. Write the one‑page operations brief. Tell the people who would need to act where these papers live.

Create and fund your trust so the business keeps moving: Online Revocable Living Trust → /product/online-living-trust/

Use step‑by‑step templates (assignment forms, funding checklists): Living Trust Kit → /product/living-trust-kit/

Handling an owner’s estate now? How to Probate an Estate (Book) → /product/how-to-probate-an-estate/ • Online Last Will & Testament → /product/online-last-will/