You've dedicated your life to building your business, and it brings peace of mind to know that future generations can inherit and continue to grow it. Having a will or trust is a good start, but it may not be enough on its own to achieve what you want. To have a comprehensive estate plan, business owners should integrate estate planning with business succession planning in Oklahoma. That way, there's a complete roadmap for how heirs will inherit and how business ownership will functionally transfer.

Key Takeaways

• Oklahoma has no state estate tax or inheritance tax, but federal estate tax applies.
• A buy-sell agreement controls what happens next, while a will names who inherits.
• The operating agreement is the primary document governing succession of an LLC.
• Generally, fair market value is used for business succession and tax purposes.
• Business succession goes through probate when there's no succession plan in place.

A Will Alone Isn't Enough to Protect a Business Owner's Company

Business owners often mistakenly assume that having a will is good enough for their business succession plan. A will isn't enough because it only names who will inherit what. It doesn't outline how that transfer of assets will happen. The will doesn't address whether the other business owners need to approve or accept the named inheritor or if they have a right to object. It also doesn't address if the other business owners have a right or obligation to buy the deceased's ownership interest instead. Then there is the issue of valuation and how that is determined.

This is where business succession planning in Oklahoma can fill in the gaps.

Importantly, a buy-sell agreement is the legal mechanism that is typically used in business succession planning to address these issues. After a qualifying triggering event takes place, the buy-sell agreement will define what happens next:

- Triggering events: Defined circumstances that activate the agreement, such as death, disability, incapacity, retirement, or desire to sell.

- Valuation method: Calculation method of valuing the owner's interest, such as a specific formula or independent appraisal.

- Purchase rights and obligations: Who can or is required to purchase the owner's interest.

- Funding mechanism: How the ownership transfer will be paid for, such as a dedicated insurance policy.

As you can see, the will and buy-sell agreement need to coordinate and agree on what happens. If they are in conflict, this can create a source of discord for family members.

An LLC's Operating Agreement Is the Foundation of Its Succession Plan

Another component of business succession planning in Oklahoma can include LLC formation. This is a common structure for many Oklahoma family businesses. There should be an operating agreement that controls how that LLC operates and what happens to a member's interest when they leave, become disabled, or die. The Oklahoma Limited Liability Company Act controls how LLCs operate; succession terms must comply with the applicable statutes. If the LLC's operating agreement is silent on succession, the default statute will apply.

Under Oklahoma Statutes § 18-2036(B), the personal representative of a deceased LLC member takes on the rights of an assignee of that member's interest. That doesn't mean the representative has full membership and management rights, though. Single-member LLCs follow a different law. Under § 18-2036(C), a sole LLC member dying means the personal representative has the associated rights, powers, and duties for the benefit of the deceased member's estate.

Sole owners of an LLC especially need to have a succession plan in place because there are no other members to take over in their shoes. There needs to be a plan in place for who has authority to manage the business and how a successor will be appointed. There also needs to be a plan for how the business will operate in the interim of the estate being administered.

While this all sounds straightforward, the reality tends to be different. Business owners unintentionally create legal gaps that are not obvious until a triggering event happens. By the time the issue arises, it's often too late to go back and add the essential terms. Business owners who use an online template or write their operating agreement without the assistance of an attorney open themselves to the risks associated with those gaps. The terms that are commonly neglected include transfer restrictions, valuation methods, and what happens when a member dies.

Valuation and Federal Estate Tax Still Matter, Even Without an Oklahoma Estate Tax

Business owners don't have to worry about state estate tax or inheritance taxes when it comes to estate planning and business succession planning in Oklahoma. However, the federal estate tax may still apply. For 2026, the federal estate tax exemption is $15 million per individual, a figure that is adjusted for inflation in later years. A closely held business is counted in the total value of the owner's taxable estate. That can push the estate's value over the exemption threshold. A business owner with substantial personal assets or a high-value business will need to consider how the inclusion of the business can expose them to additional tax liability.

For succession and estate tax purposes, a business is generally valued at its fair market value. Fair market value is the price a hypothetical willing buyer and willing seller would agree on, neither under any compulsion to act and both having reasonable knowledge of the relevant facts. In other words, what would an unrelated buyer pay for the owner's interest in the business? A variety of factors can go into the calculation, such as physical assets, cash flow, customer concentration, owner dependency, and debt value.

For individuals who have a minority ownership interest, there could be valuation discounts available. The justification is that a minority owner has a lack of operational control or marketability for their ownership interest. Whether either discount is appropriate, and the amount of any discount, depends on the circumstances. A qualified expert appraisal could support a valuation discount.

Without a Succession Plan, a Business Interest Goes Through Probate Like Any Other Asset

Without business succession planning in Oklahoma, owners risk leaving the transfer of the business interest and the authority to manage it unresolved. The business interest could become part of the owner’s estate and go through probate. This is the same process as any other personal asset, such as a house or bank account. If the business owner has a valid will, it will control how assets are distributed. If the will isn't valid or there is no will, Oklahoma's intestacy statutes will dictate how the ownership interest and other estate assets are distributed.

For a business interest, the probate process can be especially problematic. Probate goes through Oklahoma's court, which means that it is public. There are times when a business may not want its information available for the general public to look up. Additionally, probate can take months or even years to complete. During that time, the business could sit in limbo without clear controlling leadership or access to funding. If there is a dispute over valuation, it can also delay the transfer.

Delays and halts in operations can cause serious damage to the business's reputation and customer relationships. Financing can also be put in jeopardy. The day-to-day operations can also be strained without someone with authority to make decisions.

An owner who has a valid will can avoid intestacy laws. That same owner may be able to avoid probate for the business ownership transfer by preparing a buy-sell agreement with the necessary terms and ownership structure. They should also coordinate the buy-sell agreement with their will. Life insurance may provide the funding needed to complete a purchase after the owner's death.

Consult with an Oklahoma Business Succession Planning Attorney

While it's smart to have a will and larger estate plan, business owners shouldn't depend on those documents solely. Instead, they should combine these with a succession plan. At Titus Hillis, our attorneys have experience with estate planning and business operations. This dual-pronged approach ensures our clients have the counsel they need for business succession planning in Oklahoma. We address each client's unique needs, preparing wills, trusts, operating agreements, and buy-sell agreements when appropriate. Contact our firm today by requesting a consultation online or calling 918-587-6800 to discuss your business succession plan.