What happens to S-Corporation shares not transferred to an estate after death?

Full question:

If an individual dies with a gross estate of less than $1.6 million and is the sole owner of an S-Corporation which, in his will he did not transfer the shares of the corporation to the estate, does the estate own the corporation, entitling the beneficiaries to all corporate financial records? Or, are the beneficiaries only entitled to a summary of the value of the corporation and not the privileged financial detail of the corporation? They will only directed the sale of the corporation by the executor to split the proceeds equally between the heirs. Clarification is needed as to what happens to the ownership of the shares of a closely held corporation that continues to exist two years after death and is not transferred to the estate. Clarification is needed as to what specific information the beneficiaries are entitled to regarding said corporation.

• Category: Wills and Estates
• Subcategory: Will Contests
• Date: 04/07/2025
• State: New York

Answer:

Business records are generally not public but may need to be produced in court proceedings, such as requests for production. If it’s in the estate's best interests, the court can require an accounting from the estate administrator upon petition by an interested party. In New York, a six-year statute of limitations applies for actions to compel an accounting.

According to NY statutes:

1. The court can order a fiduciary to file an account if it’s deemed necessary for the estate's best interests (N.Y. Surr. Ct. Proc. Act § 2205).

2. Interested parties, including beneficiaries, can petition for an accounting of the estate, which may include information about the corporation (N.Y. Surr. Ct. Proc. Act § 2206).

3. If the corporation continues to exist without the shares being transferred to the estate, the estate may not automatically own the corporation. However, the beneficiaries may have rights to certain financial information, especially if they are entitled to proceeds from the sale of the corporation.

In summary, beneficiaries may be entitled to a summary of the corporation's value but not necessarily detailed financial records unless they petition the court for an accounting.