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Looks like I misunderstood. So what you are proposing is a distribution payable by a note to shareholder #4? I don't believe you can call it a distribution until the shareholder is actually paid cash.

Where the heck do our clients get ideas like this

The article I referenced said that the uneven distribution could be made up in the following year even though that would be an uneven distribution. "The regs do include a helpful example, however: S, a corporation, has two equal shareholders, A and B. Under S’s bylaws. A and B are entitled to equal distributions. S distributes $50,000 to A in the current year, but does not distribute $50,000 to B until one year later. The circumstances indicate that the difference in timing did not occur by reason of a binding agreement relating to distribution or liquidation proceeds.Under paragraph (l)(2)(i) of this section, the difference in timing of the distributions to A and B does not cause S to be treated as having more than one class of stock" I wouldn't create a loan document, I would just do a catch up distribution in the following year, nothing more should be needed

Then the entity has a second class of stock and not eligible for S Corp status.

1120S filed for full year. 2 K-1’s issued, one to deceased for the period 1/1-DOD, 2nd to estate for the rest of the year.

Unfortunately this isn't going to happen. Bitter infighting amongst the SHs. Long, sad story. But thanks for the suggestion. This is what I was hoping wasn't the case. I didn't realize an actual cash transfer was a requirement. Thank you for your insight @DANRVAN.