How the death of a shareholder in a growing healthcare corporation can create estate disputes, liquidity problems, and tax risks for surviving professionals — and why proper planning matters long before a crisis occurs.

The names and certain identifying details in the following scenario have been changed to protect the privacy of the individuals involved.

How It All Began

Dr. Emily Carter and Dr. Sarah Bennett had each operated successful ophthalmology practices as sole proprietors for years before deciding to combine their operations into a single incorporated structure.

Both practiced primarily through a modern, technology-driven model that blended:

• surgical work
• consultations
• satellite clinic coverage
• virtual follow-ups
• coordinated patient management systems

Over time, the two ophthalmologists began collaborating more closely. Initially, the arrangement was informal:

• shared administrative infrastructure
• coordinated scheduling systems
• unified branding
• common staff support
• gradual integration of associates and contractors operating under a single practice identity

Eventually, on legal and accounting advice, they decided to formally combine their practices into a newly incorporated corporation. A formal valuation was obtained as part of the incorporation process. That valuation concluded that the combined sole proprietorship practices being transferred into the corporation had a fair market value of approximately $1.25 million at the time of rollover.

Importantly, the value was not driven primarily by equipment or leaseholds. Rather, it reflected:

• established patient flow
• referral relationships
• surgical volume
• goodwill
• integrated administrative systems
• trained staff
• associate relationships
• reputation
• expectation of significant future earnings

Each ophthalmologist therefore effectively contributed approximately $625,000 of value into the corporation from the outset. Both expected the practice to continue growing substantially over time.

They anticipated:

• expanding surgical volume
• adding associates
• opening additional satellite locations
• increasing retained earnings
• potentially building one of the larger regional ophthalmology groups in their area.

Because they trusted one another and the practice was growing rapidly, however, difficult succession discussions were deferred.

Their shareholders’ agreement was relatively simple. It addressed:

• governance
• voting rights
• general transfer restrictions

but it failed to adequately deal with:

• death
• mandatory buyouts
• valuation methodology
• payment terms
• insurance funding

No life insurance was obtained to fund a future purchase of shares. Over the following years, the practice flourished. Revenues increased significantly. Additional associates joined the group. Retained earnings accumulated. The corporation’s reputation strengthened within the medical community. Referral relationships deepened. Operational systems became increasingly sophisticated and scalable.

An Unexpected Loss Changes Everything

By the time tragedy struck, the corporation had grown dramatically in value. Following a sudden medical event, Emily died unexpectedly. The emotional impact on Sarah, staff, associates, referral sources, and patients was enormous. But practical business problems emerged almost immediately. A valuation obtained shortly after Emily’s death concluded that the corporation was now worth approximately $3.1 million. Emily’s interest alone was therefore worth approximately $1.55 million. What had once begun as a collegial incorporation involving two practitioners contributing $625,000 each had now evolved into a corporation where the deceased shareholder’s interest exceeded one and a half million dollars.

Emily’s shares did not disappear upon death. Instead, ownership passed to her estate. Her husband, acting as estate trustee, now effectively stood in Emily’s place economically as owner of half the corporation. From the estate’s perspective, the issue appeared straightforward. Emily had spent years helping build the corporation into a highly valuable practice. Her family was now entitled to receive the fair value of her ownership interest.

Suddenly, Everyone Had a Different Problem

Sarah suddenly found herself in a profoundly difficult position. She was now:

• the sole remaining founding ophthalmologist
• the individual maintaining surgical continuity
• preserving referral relationships
• supervising associates and staff
• managing operations
• carrying responsibility for the future success of the practice

Yet economically, she remained tied to the estate of a deceased shareholder whose interest was now worth approximately $1.55 million. Very quickly, competing interests emerged. The estate requested:

• updated financial statements
• access to corporate records
• participation in future profits
• discussions regarding the current and future value of the corporation

Sarah wanted operational certainty and a clean separation. But she faced a serious problem: There was no funding mechanism in place to purchase the estate’s shares.

Because no insurance had been obtained:

• there was no immediate liquidity
• no pre-funded buyout arrangement
• no mandatory redemption process

At the same time, Sarah could not easily produce $1.55 million personally to buy out the estate. Most of her wealth remained:

• tied up inside the corporation
• invested in her own professional structure
• dependent upon future earnings

The tension became particularly acute because the practice was expected to continue increasing substantially in value. The estate began asking: “Emily helped build this practice from the ground up. Why should the estate exit now if the corporation may be worth five or six million dollars within a few more years?”

Sarah viewed matters very differently: “Future growth will depend almost entirely on my ongoing labour, surgical work, reputation, and management effort. The estate cannot remain indefinitely as a passive participant while I alone generate future value.”

The situation became increasingly uncomfortable. Every major business decision now carried competing economic interests:

• compensation structures
• retained earnings
• expansion plans
• hiring associates
• future distributions

The estate worried Sarah might structure compensation in a way that reduced corporate value. Sarah worried about operating indefinitely in business with a non-physician estate whose priorities were entirely financial. What had originally felt like a straightforward and collegial incorporation between two trusted professionals had now become:

• an estate liquidity issue
• a valuation dispute
• a governance problem
• a serious threat to the continuity of a growing ophthalmology practice

The Risk Hidden Inside Many Professional Corporations

What makes this scenario particularly unsettling for many healthcare professionals is not that it is unusual. It is that it is entirely predictable. Incorporations between unrelated professionals often begin modestly:

• two practitioners combine operations
• efficiencies are created
• systems become integrated
• retained earnings accumulate
• associates are added
• suddenly what once appeared to be “just shares” has quietly become a multi-million-dollar asset

Yet many professional corporations remain dangerously underplanned.

In my experience working with healthcare professionals, the legal documents are often drafted at the beginning of the relationship when:

• the practice has minimal value
• optimism is high
• difficult conversations feel unnecessary

Years later, however, circumstances change:

• practices grow
• goodwill increases
• families become financially dependent upon corporate value
• the tax and liquidity implications of death, disability, retirement, or shareholder disputes become far more serious

The problem is that these issues are rarely discovered at a convenient time. They emerge:

• after a sudden death
• during a health crisis
• amidst burnout
• when relationships between shareholders begin to deteriorate

By then, the available planning opportunities are often dramatically reduced.

What Healthcare Professionals Can Learn From This Situation

For healthcare professionals operating through corporations — particularly with unrelated shareholders — proactive planning is not merely a legal exercise. It is fundamentally:

• a tax planning exercise
• an estate planning exercise
• a continuity planning exercise
• increasingly, a risk management exercise

The right structure may involve:

• shareholders’ agreements or revisions to existing agreements
• valuation mechanisms
• life insurance funding
• disability buyout insurance
• estate freezes
• holding companies
• corporate reorganizations designed to create flexibility before problems arise

Equally important is ensuring these strategies are implemented in a tax-efficient manner. Poorly structured buy-sell arrangements can unintentionally create:

• double taxation
• trapped corporate cash
• shareholder benefit concerns
• capital gains issues
• disputes over future corporate growth

These are not merely theoretical concerns. They are real issues affecting real healthcare professionals with practices worth substantial sums of money. The healthcare professionals I work with are often focused on patient care and practice growth that these issues remain in the background until an event forces immediate attention. Unfortunately, the best planning opportunities almost always exist before the crisis occurs.

That is why these conversations matter before it is too late. Not because anyone expects tragedy — but because successful professional corporations eventually become valuable enough that failing to plan can place:

• families
• surviving shareholders
• staff
• the practice itself under enormous financial and emotional strain

As a CPA working extensively with healthcare professionals, part of my role is helping clients identify these risks while there is still time to address them thoughtfully, strategically, and tax-efficiently.

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Disclaimer

This article is intended for general information purposes only and should not be relied upon as legal, tax, insurance, accounting, or financial advice. Readers should obtain independent legal, tax, accounting, and insurance advice before implementing any strategy discussed herein. Tucker Professional Corporation accepts no responsibility for reliance placed upon this article without obtaining appropriate professional advice.