[SC] What happens to an S corporation when the owner dies without a will?

Lexi, Chatbot

I'm sorry to hear about your brother's passing; that can be a difficult situation to navigate. Can you tell me if you are the executor or administrator of your brother's estate?

Lexi, Chatbot

Have you already started the process of settling his business affairs, or is this your first step in addressing the tax implications?

Brandon

Hi there. My name is Brandon and I'm an attorney. I'll be happy to help you out today. Please note that this discussion is for guidance only and does not constitute an Attorney-Client Relationship. My answers and comments should not be considered legal advice.

I am sorry about your loss. Can you tell me if he was married or had any children?

Brandon

PERSONAL ESTATE AND PROBATE

Because your brother died without a will, South Carolina’s intestacy laws will determine how his assets are distributed. Generally, when a married person dies without a will in South Carolina:

• • If the decedent leaves a spouse and children, the spouse typically receives half of the estate, and the children share the remaining half equally. (SC Code § 62-2-102), (SC Code § 62-2-103)

The probate court will appoint a personal representative (executor) to manage the estate. Since there was no will naming one, a family member—often the spouse or one of the adult children—can petition to be appointed.

Given that his wife is alive but has her son acting under POA, the son could likely file for appointment on her behalf, though the court may require formal notice to all children before making that appointment. This is especially important because business interests are considered part of the estate’s assets.

Next steps on the personal side:

1. File a petition for probate in the county where your brother lived. This opens the estate and begins the process of identifying assets, debts, and beneficiaries. (SC Code § 62-3-301)
2. Gather key documents, such as the death certificate, marriage certificate, bank and investment statements, property deeds, and the last tax return (personal and business).
3. Determine the business ownership interest. If your brother was the sole shareholder of the S corporation, those shares now belong to his estate, and the personal representative (once appointed) will control that interest until distributed or sold.

BUSINESS AND TAX MATTERS

Since your brother filed Form 1120-S, that means the company was an S corporation, a pass-through entity where income and losses flow to shareholders via Schedule K-1. When an S corporation owner dies, a few key things must happen: (SC Code § 62-3-101)

1. Determine ownership and succession:

   • If he was the sole shareholder, his estate temporarily becomes the shareholder until shares are transferred to the rightful heirs.

   • If there are other shareholders, they must be notified of his death, and the corporate bylaws or shareholder agreement (if one exists) will govern what happens to his shares.

2. Continue or close the business:
   • The estate representative or the POA (acting for the widow) will need to decide whether to keep the business running, sell it, or dissolve it.
   • This decision will depend on whether there are other active partners, the company’s financial health, and the family’s wishes.
3. Address the tax filings:
   • A final 1120-S may need to be filed for the year of death, allocating income up to the date of death.
   • The estate or heirs may also need new EINs if the business structure changes (for example, converting to a single-member LLC or dissolving the S corp).
   • The K-1 issued for this final period should go to the estate rather than directly to your brother.
4. Notify the IRS and state agencies:
   • Inform both the IRS and the South Carolina Department of Revenue of the death, using the final return and an accompanying letter.
   • If payroll or sales tax accounts exist, those will need to be updated or closed depending on the company’s future.

COORDINATING BOTH PROCESSES

Because the business is intertwined with the estate, the probate attorney and whoever handles the business taxes need to coordinate. Typically, the estate attorney handles probate filings, while a CPA or tax attorney prepares the final 1120-S, the estate tax filings, and potentially the widow’s return if she files jointly for the year of death.

Best next steps:

• 1. Identify who currently has control of business documents (bank accounts, QuickBooks, tax returns, etc.).
  2. Confirm if there are any other shareholders or if your brother owned 100%.
  3. Begin the probate petition in the county where your brother lived.
  4. Retain a CPA familiar with estate and business succession to prepare the necessary tax filings.

Brandon

You are very welcome. I wish you the best.