Death of a Partner or Shareholder: Tax Implications and Planning Opportunities

The death of a shareholder or partner can severely impact a business. This can affect the company's continuity, and the tax ramifications are often significant. The consequences of an owner's death vary depending on the entity type. The relative tax consequences depend on whether the business is a single-member LLC, multi-member partnership, Subchapter S Corporation, or other flow-through structure. A multi-member LLC, for example, might include provisions in the operating agreement stating that other members must purchase the deceased's interest, transfer the interest to heirs, or dissolve the business.

A Section 754 election would allow a partnership to adjust the estate's share of the partnership's assets to fair market value. No similar provision exists for S corporations; however, Section 1014 allows the step-up of the deceased shareholder's interest to market value at the date of death. Should the S corporation choose to liquidate assets, shareholders could face substantial taxes from a sale, even with the step-up, if not appropriately timed. There are many considerations and tax-saving techniques to facilitate the transfer or sale of interests in flow-through entities.

Listen as our panel of closely-held business veterans reviews the consequences of an owner's death and offers planning advice for transitioning these businesses.

1. Death of a partner or shareholder: introduction
2. Death of a partner or member
   1. Transfer and disposition of interest
   2. Section 754 elections
3. Death of a shareholder
   1. Transfer and disposition of interest
   2. Planning for inadvertent terminations
4. Succession planning
5. Examples

The panel will cover these and other critical issues:

• The impact of a Section 754 election on a deceased partner's interest
• Liquidation considerations for a deceased S corporation owner's interest
• Key provisions to consider in operating agreements for multi-member partnerships
• Planning options to mitigate taxes for remaining partners and members relative to death of an owner
• How a closely-held entity's structure impacts a business' transition after an owner's death

Learning Objectives

After completing this course, you will be able to:

• Identify provisions in operating agreements that determine how a deceased member's interest is transferred or disposed
• Determine how entity choice impacts post-death transfers of closely-held businesses
• Decide how Section 754 impacts taxation of a partnership
• Ascertain planning opportunities to facilitate the transfer of an S corporation's interest after a shareholder's death

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).