The Operations Manual Covered Everything Except This
Marcus Rivera was the kind of business owner who planned for everything. He had spent 22 years building Rivera Mechanical — a commercial HVAC company based in McKinney — from a two-person operation out of a leased garage on Virginia Pkwy to a 34-employee firm with contracts across Collin County and into Denton. He had an operations manual that ran to 140 pages. He had identified his key employee successor, a project manager named Derek who had been with him for nine years. He had a line of credit, a solid working capital cushion, and a relationship with a banker he trusted.
What Marcus did not have was an estate plan.
He had thought about it, the way most business owners think about it — as something on the list, something he would get to when things slowed down. The business always needed something more urgent. A new contract. A hiring decision. An equipment breakdown. The estate planning folder sat in his home office, untouched, next to a sticky note that said call attorney re: trust?
Marcus died in January 2026, at 58, in a car accident on US-75 North heading home to Stonebridge Ranch after a late job walk. The business had a plan. Marcus did not. And within 30 days of his death, his widow Carmen discovered that Texas law had already written one for him — and it looked nothing like what Marcus would have wanted.
What Texas Law Does When an LLC Owner Dies Without a Plan
Most business owners assume, reasonably enough, that owning a business means owning something that passes like any other asset — to a spouse, to children, to whoever is named in a will. That assumption is half right and half dangerously wrong.
In Texas, a deceased LLC member's ownership interest does pass to their heirs or estate — but under the Texas Business Organizations Code § 101.105, the heir who receives that interest becomes an assignee, not a member. The distinction is critical. An assignee receives the economic rights of the membership interest — the right to receive distributions, the right to a share of profits if the company distributes them. But an assignee does NOT automatically receive management rights — the right to vote, the right to participate in decisions, the right to any say in how the business operates.
To become an actual member with full rights, the surviving heir must be admitted by the existing members — under whatever standard the operating agreement sets. If the operating agreement is silent or if the other members object, the heir can sit on the sidelines, entitled to distributions that may never come, while a surviving partner controls the company they partially own.
Marcus owned 60 percent of Rivera Mechanical. His partner, Glen Torres, owned the other 40 percent. Carmen, now a 60-percent assignee under Texas law's default rules, had no vote. She could not demand to see the books without Glen's cooperation. She could not block a decision to bring in a new partner, stop paying distributions, or restructure the company in a way that diluted her economic interest. The operating agreement Marcus and Glen had signed in 2004 — a one-page form they had found online — said nothing about what happened at death.
The Buy-Sell Agreement That Wasn't
There was supposed to be a buy-sell agreement. Marcus and Glen had talked about it during the early years, when they attended a Chamber of Commerce workshop on business planning. They had agreed in principle: if one of them died, the surviving partner would buy out the deceased's interest at a formula value, funded by life insurance. They had both taken out policies.
What they had not done was put that agreement in writing. And by 2023, Glen's life insurance policy — the one that was supposed to fund the buyout of Marcus's interest at death — had lapsed after Glen switched banks and a premium payment fell through the cracks. Glen had meant to fix it. He never did.
This is the gap that kills the plans of a thousand Texas business owners. A properly drafted, funded buy-sell agreement is one of the most powerful estate planning instruments for a business owner. When it works, it works beautifully: one partner dies, the surviving partner uses insurance proceeds to buy out the deceased's interest at a pre-agreed price, the surviving partner gains full ownership, and the deceased's family receives a fair, liquid payment instead of an illiquid partial interest in a business they can't control. Clean. Agreed. No lawyers needed except to document the transfer.
When it doesn't work — because the policy lapsed, because the formula value was set in 2004 and never updated, because the agreement was verbal rather than written — what's left is a litigation problem. Glen and Carmen spent four months in mediation, with competing valuations of Rivera Mechanical ranging from $1.1 million to $3.4 million depending on which expert's methodology controlled. The legal fees to reach a negotiated settlement ran to $61,000. The business itself nearly collapsed while they fought over it.
The Estate Planning Tools That Actually Protect a Business Owner's Family
What should Marcus have done? The answer involves several instruments working together — not any single document, but a coordinated legal structure built around the way Texas law actually works.
1. A Revocable Living Trust as the LLC Member
Rather than holding his LLC interest in his own name, Marcus should have transferred it into a revocable living trust — with his name as trustee during his lifetime, and a successor trustee named to step in at death or incapacity. The trust becomes the LLC member. When Marcus dies, the successor trustee takes over seamlessly. There is no probate, no gap in management authority, no moment where the business hangs without a legal owner capable of exercising membership rights.
This is not a workaround — it is the standard structure for business owners who understand how estate planning and business law interact. The trust document can specify exactly how the membership interest is to be managed or disposed of after death, on Marcus's terms rather than Texas default rules.
2. A Pour-Over Will as the Safety Net
A pour-over will under Tex. Est. Code § 254.001 captures any assets that were not properly transferred into the trust before death and directs them into the trust at death through probate. For Marcus, any business-related assets that remained in his individual name — equipment, receivables, contracts not yet assigned — would flow into the trust rather than pass by intestate succession to Carmen in a form that might conflict with the business structure.
3. An Updated Operating Agreement With Estate Planning Provisions
Marcus and Glen needed an operating agreement that addressed what happens at death — not silence that triggers Texas's default assignee rules. A properly drafted operating agreement can specify that a deceased member's trust is automatically admitted as a substitute member (solving the assignee-versus-member problem), set a buy-sell mechanism and a valuation method, require the surviving member to maintain insurance, and establish a timeline and process for resolution. These are not extraordinary provisions — they are standard in any operating agreement drafted by a business attorney who understands estate law.
4. A Funded, Written Buy-Sell Agreement
The buy-sell agreement needs to be in writing, executed as a standalone contract or integrated into the operating agreement, with a valuation formula that is reviewed at least every three years, and with life insurance policies that are actively monitored for premium payments. Many business owners use a "cross-purchase" structure (each partner insures the other) or an "entity purchase" structure (the company holds the policies). Both work. Neither works if the policy lapses.
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The Tax Dimension: Why Carla Alston's Perspective Matters
There is a layer to business owner estate planning that most attorneys — and almost all business owners — miss entirely: the income tax consequences at death, and the extraordinary advantages that Texas law and the federal tax code give to business owners who plan correctly.
When Marcus died, his 60-percent interest in Rivera Mechanical received a stepped-up income tax basis under IRC § 1014(a). The assets of the business — trucks, equipment, goodwill value — were marked up to their fair market value as of his date of death. If Carmen (or a buyer) later sold those assets, they would owe capital gains tax only on appreciation since Marcus's death, not on the $1.1 million in gains that had accumulated over 22 years of building the company. That is a tax benefit worth hundreds of thousands of dollars — if the estate plan is structured to preserve it.
S-corporation elections introduce additional complexity. An S-corp cannot have a trust as a shareholder unless the trust qualifies under specific IRS rules — a Qualified Subchapter S Trust (QSST) or an Electing Small Business Trust (ESBT). If a business owner holds S-corp stock in a revocable trust and the trustee elections are not made correctly within 60 days of death, the S-corp election can be terminated — converting the entity to a C-corporation and triggering an immediate, irreversible change in how the company is taxed. That is not a hypothetical risk. It happens regularly to families whose attorneys understood estate planning but not business tax law.
There is also the question of minority interest valuation discounts. When a partial business interest is transferred — whether by gift during life or as part of an estate — the IRS generally allows a discount to reflect the fact that a minority interest is less valuable than a controlling interest (lack of control discount) and that there is no ready market for the interest (lack of marketability discount). On a 40-percent interest in a private company, these combined discounts often run 25 to 40 percent. Structuring the estate correctly to preserve and maximize these discounts is a planning opportunity that disappears once the owner is gone.
Marcus's Story: How It Ended
Carmen Rivera and Glen Torres reached a negotiated resolution in May 2026. Carmen received $1.35 million for Marcus's interest — less than the high-end valuation, more than the low-end, and after four months of fighting and $61,000 in legal fees that came out of the settlement. The settlement was funded partly by a line of credit Glen had to take against the business and partly by the company's operating reserves. Derek, the key employee successor Marcus had identified, left during the dispute. The McKinney office on Lake Forest Drive closed in June as Glen consolidated operations.
None of that was what Marcus wanted. Marcus wanted Carmen taken care of. He wanted Derek to have a path forward. He wanted the business he had spent 22 years building to survive him. The cost of the estate plan that could have achieved all three of those goals — a revocable trust, a pour-over will, a properly drafted operating agreement, and a funded buy-sell agreement — would have run between $3,500 and $7,500 at most firms that handle both estate planning and business law.
Against $61,000 in legal fees, a failed business, and a lost employee, that number is almost impossible to say out loud.
What Texas Business Owners Should Do Now
If you own a business in Texas — an LLC, an S-corporation, a professional association, or any interest in a closely held entity — your estate plan and your business documents need to be reviewed together, not separately. The questions that matter are:
- Does your operating agreement address what happens at your death? If it is silent, Texas's default assignee rules apply — and they are almost never what you would choose.
- Is your buy-sell agreement in writing and funded with active insurance? A verbal agreement and a lapsed policy are not a plan.
- Is your business interest held in a trust? If you own it in your own name, your family faces probate — and a potential gap in management authority — before they can exercise the rights that come with it.
- Has your estate attorney reviewed the tax consequences? The step-up in basis, S-corp election rules, and minority interest discount opportunities are each worth significant money if handled correctly and worth nothing if they are missed.
At WG Law, Taylor Willingham has guided more than 10,000 Texas families through estate planning — including hundreds of business-owner clients who needed the revocable trust, pour-over will, and business succession structures described above. Carla Alston brings an LL.M. in Taxation from NYU School of Law and 39 years in practice — including years as in-house tax counsel at Alcon Laboratories — to the business tax and entity-election questions that most estate attorneys cannot address at the depth these situations require.
The combination of estate planning authority and tax depth is what business-owner situations demand. It is not a problem you want to bring to someone who handles only one side of the equation.
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If you own a business and have not reviewed your estate plan with an attorney who also understands Texas business law and federal tax consequences, the right time to act is before the unexpected event — not after. The Marcus Rivera situation is not unusual. It is the outcome that waits for every business owner who keeps the estate planning folder on the shelf.
To speak with our team, call WG Law at 214-250-4407 or visit our Estate Planning practice area or Business Formation practice area pages. You can also review typical Texas estate planning costs and read our companion piece on the community property double step-up in basis — a related tax advantage most Texas business owners are also missing.
This article is for general informational purposes only and does not constitute legal or tax advice. Every business owner's situation is different. Consult with a licensed Texas attorney before making decisions about your estate plan or business structure.