For many Pennsylvania business owners, the company is worth more than the house, the retirement accounts or anything else they own. It is also harder to value, harder to sell quickly and governed by documents most estate plans never look at. This page covers the owner’s own estate plan: what happens to your LLC or corporate interest at death or incapacity, how your power of attorney and trust reach it, and how it is taxed. Joseph F. Leeson III, JD, MBA, CPA (Inactive), reads the operating agreement and the tax returns with the will, because for a business owner the three are one plan.
Why the company needs its own place in your plan
A will that leaves “everything to my children” does not say who can sign checks for the company next week, whether the other owners must accept your children, or how the estate pays a tax bill that falls due before the business can be sold. Those answers sit in four places, which often contradict each other:
- The company’s governing documents: the LLC operating agreement, or the corporation’s bylaws and any shareholder agreement.
- Any buy-sell agreement between the owners.
- Your personal documents: will, revocable trust and power of attorney.
- Pennsylvania’s default rules, where the documents are silent.
The work is making them agree.
What happens to an LLC interest at death or incapacity
At death
Under Pennsylvania’s LLC law, a member is dissociated when the member dies (15 Pa.C.S. § 8861(7)(i)). The person’s rights as a member end, and the interest is generally then held only as a transferee (15 Pa.C.S. § 8863(a)). A transferee has the right to receive the distributions the member would have received, but no right to take part in managing the company (15 Pa.C.S. § 8852). To settle the estate, your personal representative can also use your rights to company information and, if the company is dissolved, a transferee’s right to an account of its transactions (15 Pa.C.S. § 8854).
In plain terms: unless the operating agreement says otherwise, your family inherits the money from your interest, not your vote. After formation, a person becomes a new member as the operating agreement provides or with the consent of all the members, among a few other routes (15 Pa.C.S. § 8841(d)). If you want a child or a trustee to step into your seat, the operating agreement should say so.
Single-member LLCs
If the company has no members left, it dissolves 180 consecutive days later. The exception is when, before the period ends, the transferees who hold the right to a majority of distributions consent to admit a member and that person is admitted (15 Pa.C.S. § 8871(a)(3)). If your operating agreement does not address this, a short clause naming who becomes the member at your death gives the family a clear path.
If you lose capacity
In a member-managed LLC, you are also dissociated if a guardian is appointed for you, or if a court orders that you can no longer perform your duties as a member (15 Pa.C.S. § 8861(7)(ii)). The operating agreement can add other events that cause dissociation (15 Pa.C.S. § 8861(2)), so read it for clauses that remove a disabled member or force a sale.
Corporations: shares, bylaws and shareholder agreements
If your company is a corporation, check whether its bylaws or a shareholder agreement restrict who may own shares. Pennsylvania allows restrictions in either, and a permitted restriction can be enforced against a holder’s successor. A restriction has to be noted conspicuously on the share certificate, or in the required notice for uncertificated shares. If it is not, it binds only someone who actually knew about it (15 Pa.C.S. § 1529). Before leaving shares to a child or a trust, confirm the transfer is allowed. If the company has an S election, the wrong kind of trust can end it; we explain how in how your estate plan can terminate your S election.
If there is a buy-sell agreement, your will and trust have to match it. How those agreements are structured, priced and funded is part of succession planning, covered below.
A power of attorney that reaches the business
Pennsylvania lets you give an agent the power “to operate a business or entity” (20 Pa.C.S. § 5602(a)(24)). The law defines that power to include continuing or taking part in running any business in which you hold an interest, making decisions on its financing, operations and employees, changing its form, and taking part in a reorganization, merger or dissolution (20 Pa.C.S. § 5603(u.2)).
Some powers need more than general language. An agent can create or change a trust, make a gift or change a beneficiary designation only if the power of attorney expressly grants that authority. Even then, the agent can act only if no other agreement or instrument governing the property prohibits it (20 Pa.C.S. § 5601.4(a)). For an owner, that other instrument is often the operating agreement or shareholder agreement. Your power of attorney and the company’s documents need to be read together.
Funding a revocable trust with business interests
A revocable trust only controls what is actually transferred into it, and a business interest is easy to leave out. How you transfer it depends on the entity:
- LLC interests. Assigning your interest to your trust transfers your economic rights. On its own, it does not make the trust a member or remove you as one (15 Pa.C.S. § 8852(a)). For the trustee to be admitted as a member, follow the operating agreement or get the consent of all the members (15 Pa.C.S. § 8841(d)).
- Corporate shares. Check the bylaws and any shareholder agreement for transfer restrictions first (15 Pa.C.S. § 1529), then reissue or endorse the shares to the trustee. For an S corporation, follow the S corporation post linked above before signing anything.
- Sole proprietorships. There is no entity, so each business asset and account is transferred on its own.
A revocable trust does not reduce Pennsylvania inheritance tax. The Department of Revenue treats property in a trust where the settlor kept the right to use it, take its income or withdraw it as part of the taxable estate (PA DOR Ruling INH-04-011, applying 72 P.S. § 9107(c)(5)).
Pennsylvania inheritance tax on a business interest
Business interests are reported on Schedule C of the Pennsylvania inheritance tax return, at their value at the date of death. For corporate stock or a partnership interest, the estate must attach a supplemental schedule and its valuation calculations, along with financial statements or federal returns for the year of death and the four years before it (REV-1504 instructions). Rates depend on who inherits: 0% to a surviving spouse, 4.5% to children and other lineal heirs, 12% to siblings and 15% to most others. The tax becomes delinquent nine months after death, and a 5% discount applies if it is paid within three months (PA Department of Revenue).
Pennsylvania also has a narrow exemption for qualified family-owned business interests, with strict size, ownership and seven-year requirements. It has to be claimed on a timely filed return. Rather than repeat the rules here, we compare it with the farm exemption and show who qualifies in Pennsylvania inheritance tax: the family business vs. family farm exemption.
Federal estate tax: only above the exemption
Federal estate tax applies only when an estate exceeds the basic exclusion amount. The federal tax law signed on July 4, 2025 (Public Law 119-21) set that amount at $15,000,000 for 2026 (IRS, What’s New, Estate and Gift Tax). For owners near or above the line, the planning is covered on our page on federal estate and gift tax exemption planning.
One federal rule is written for owners. If a closely held business interest is more than 35% of the adjusted gross estate, the executor may elect to pay the share of the estate tax attributable to it in up to 10 annual installments. The first installment can be deferred up to five years past the normal due date (26 U.S.C. § 6166).
Liquidity: the bill arrives before the buyer does
A valuable company can still leave the estate short of cash. Pennsylvania inheritance tax becomes delinquent nine months after death, and the business may be the only asset large enough to pay it. Meanwhile the company often loses the person who brought in its customers and signed its loans. A plan should answer both problems:
- Cash for the estate. Life insurance on your life, whether payable to the estate or a named beneficiary, is exempt from Pennsylvania inheritance tax (REV-1508 instructions; 72 P.S. § 9111(d)). It can fund a buy-out or the tax bill.
- Cash for the company. Key-person coverage, banking arrangements that do not depend on you alone, and a named person with authority to sign.
- A buyer who can pay. A funded buy-sell agreement turns your interest into cash. The succession page linked below covers how to set one up.
Working with your CPA and financial advisor
Your CPA holds the returns and financial statements the Department of Revenue will ask for. Your financial advisor holds the accounts and beneficiary designations that pass outside your will. Your lawyer drafts the documents that tie them together. Joseph trained and practiced as a CPA before he practiced law, so he reads the returns and the operating agreement side by side. We explain how the three advisors should divide the work in how your attorney, CPA and financial advisor should work together on an estate plan.
Where succession planning fits
This page is about your personal estate plan, with the company as one of its assets. Handing the business itself to the next owner, through family, partners or a sale, is a separate project covered on our page on business succession planning for Pennsylvania family businesses. Most owners need both, drafted to match.
Frequently asked questions
Does my LLC interest go to my children automatically?
Not as members. Under Pennsylvania law, a deceased member’s interest is generally held as a transferee interest, which carries distributions but not management rights. Your children become members as the operating agreement provides or with the consent of all the remaining members. If no members are left, transferees holding a majority of distributions can consent to admit a member within 180 days (15 Pa.C.S. §§ 8863, 8841(d), 8871(a)(3)).
Will my power of attorney let my agent run my business?
Only if it grants the power to operate a business or entity, and only to the extent the company’s own documents allow it. Gifts and trust changes need express authority (20 Pa.C.S. §§ 5602, 5601.4).
Does putting my company in a living trust avoid Pennsylvania inheritance tax?
No. Property in a trust where you kept the right to use it, take its income or withdraw it is still taxed at your death (PA DOR Ruling INH-04-011).
How we work with business owners
We work with business owners in Bethlehem and across the Lehigh Valley. Tell us what the company owns, what it owes and who runs it, and we will tell you which documents need attention first. We review the company documents and your personal documents together, alongside your CPA and advisor. If you decide to go ahead, we give you a written fee proposal before any work begins.
Joseph F. Leeson III trained and practiced as a CPA before he practiced law, with four years in tax accounting. He holds a JD from Indiana University Maurer School of Law and an MBA in accounting from DeSales University. He was born and raised in Bethlehem, and practices at Leeson & Co., 70 E. Broad Street, Bethlehem, PA 18018.
Call 610-691-3350 or contact Leeson & Co.
This page explains general principles of Pennsylvania and federal law and is not legal or tax advice for your situation. Tax figures and exemption amounts change. Please speak to us and your CPA before acting on anything here.