Why Business Owners Should Think About Estate Planning
Estate planning in business is not about death and not about the formal distribution of property. It is about a managerial decision made during one’s lifetime: what exactly should happen to the business and key assets when the owner is no longer able to participate in management.
By default, this issue is not decided by the owner. It is decided by statutory law, the company’s charter, written corporate arrangements between partners, and law enforcement practice. At that point, the will of the person who built the business, made strategic decisions, and bore responsibility for the company may cease to matter.
According to practicing lawyers, systematic estate planning in business remains rare in Russia. Most owners limit themselves to general wills or postpone the issue altogether, assuming that partners and heirs will be able to reach an agreement. In practice, the absence of a clearly documented will most often leads to loss of control and prolonged conflicts.
A typical situation looks like this: after the owner’s death, the company enters a period of uncertainty for up to six months – the statutory period for accepting an inheritance. During this time, the business continues to operate, but key decisions may be blocked, banks and counterparties take a wait-and-see approach, and partners act strictly within the framework of the charter and their own interests. The law does not ask what was “intended.” It applies default rules. Conflicts between heirs, or between heirs and the remaining partners, often last for years and may ultimately lead to the collapse of the business.
It is important to understand that the purpose of estate planning is often not to transfer the business to heirs at any cost. In many cases, the owner does not want children or other heirs to become participants in the business, yet still wishes to ensure their financial protection. In such situations, the priority may be to preserve the company under the control of partners or a professional management team, while providing heirs with a share of profits or other financial compensation. Estate planning makes it possible to fix in advance the scenario that the owner considers appropriate.
Equity Interests in a Business – The Primary Risk Area
For business owners, the key asset is most often not real estate or bank accounts, but an equity interest in a company. At the same time, an interest in a limited liability company (LLC) differs fundamentally from “ordinary” property.
In an LLC, an interest does not automatically pass to heirs. The charter may prohibit the transfer of an interest or require the consent of the other participants. If consent is not obtained, the heir is entitled only to payment of the actual value of the interest. In practice, this amount often differs significantly from the valuation of the business expected by the owner or the heirs.
Even if the owner intended during their lifetime for the business to pass to a partner while the heirs received financial compensation, without prior adjustment of corporate documents such a decision may be implemented in a chaotic and conflict-driven manner. The law allows for various scenarios but does not choose among them for the owner.
Another issue arises in the period between death and acceptance of the inheritance. Formally, the heirs have not yet acquired rights to the interest, but the business continues to exist and develop. Trust management of the interest is possible during this period; however, in practice this mechanism is rarely used and requires timely action. As a result, management may become “suspended,” creating risks for ongoing operations.
It is also important to consider the role of the general director. The director is not automatically replaced and continues to exercise their authority. Heirs often mistakenly believe that they can influence company management before inheritance procedures are completed, but this is not the case. This leads to a gap between expectations and legal reality.
In joint-stock companies, the situation is generally simpler – shares are transferred more freely. However, issues of corporate governance, interaction with the registrar, and the exercise of rights during the transitional period may still arise.
Partners and Heirs – Different Interests, One Business
One of the key mistakes business owners make is assuming that the interests of heirs and the interests of the business always coincide. This is not the case, and there is nothing unusual about it.
For the family, the business is often a source of income or part of the estate. For partners, it is an operating commercial project where manageability, speed of decision-making, and predictability are essential. After one of the owners leaves, these interests may diverge.
Estate planning makes it possible to agree in advance on a “decision fork.” A shareholders’ agreement, call options on the purchase of an interest (the right of a partner or the company itself to acquire the heirs’ interest under a pre-agreed pricing formula), and charter provisions – all these instruments work only if they are prepared during the owner’s lifetime.
In some cases, a reasonable solution is to transfer the business to a partner with an obligation to buy out the heirs’ interest. In others, to retain the interest for the heirs but without participation in management. Hybrid models are also possible. The key condition is that such scenarios must be fixed in advance rather than formed after a crisis has already occurred.
Foreign Assets and the International Dimension
If the owner holds assets outside Russia, the situation becomes significantly more complex. The basic conflict-of-laws rule is that real estate is inherited under the law of the country where it is located, while movable property is governed by the law of the country of the deceased’s last residence. This means that a single Russian will is often insufficient.
In practice, the absence of a separate estate plan in a foreign jurisdiction leads to prolonged freezing of assets. Parallel procedures are required, along with interaction with foreign notaries, banks, and registrars. Sanctions restrictions and compliance checks further complicate the process.
If assets are structured through foreign companies, foundations, or other legal vehicles, what is inherited is not the asset itself but participation in the structure. This requires separate analysis and configuration. In addition, currency regulation requirements and obligations to notify tax authorities about controlled foreign companies and foreign bank accounts must be taken into account, as these often become an independent source of risk for heirs.
Estate Planning Instruments – What Is Important to Understand
A will remains the basic instrument of estate planning, but its capabilities are limited. It determines the circle of heirs but does not always allow complex management scenarios in business to be implemented. An inheritance agreement provides greater flexibility but is used relatively rarely in practice.
Inheritance funds and personal funds allow a governance model for assets to be established, but they are not suitable for everyone and require substantial preliminary preparation. Prenuptial agreements and marital property division agreements play a key role in determining the composition of the estate and are often underestimated by business owners.
There are also other types of agreements and legal instruments that, in combination with one another, with wills in the relevant jurisdictions and, for example, a prenuptial agreement, may help ensure the implementation of the owner’s will.
At the same time, it is important to bear in mind that, as a rule, none of the estate planning instruments allows the complete exclusion of the statutory right of disabled heirs to a mandatory share of the inheritance. This factor must be taken into account when choosing any structure.
When to Start Estate Planning
Estate planning should not be linked to age, but to the structure of assets and partnerships. The appearance of partners, entry into foreign markets, business growth, and changes in family circumstances are all signals that the “default plan” is no longer appropriate.
If the owner has not documented their will, formal rules will replace it. After their departure, decisions will be made without them – and not necessarily in the way they expected.
Estate planning is an investment in business manageability and predictability of the future. It is a way to preserve the structure that has been built and to ensure the implementation of the scenario chosen by the owner, rather than a compromise imposed by circumstances.
In the following materials, we will examine in detail corporate mechanisms, interest buy-out instruments, interaction with partners and heirs, as well as the limitations that cannot be bypassed even with the most carefully designed planning.