Estate Planning for Business Owners: Your Legacy Depends on Smart Succession and Tax Strategies

As a business owner, you’ve spent years building something meaningful—but what happens to your company when you’re no longer around to run it? Estate planning isn’t just for retirement; it determines what will happen to your business if you pass away suddenly or become incapacitated, ensuring your business continues benefiting your loved ones and employees.

The Critical Tax Changes Ahead

Beginning January 1, 2026, the estate and gift tax exemption is scheduled to essentially be cut in half, leaving every dollar of value above the reduced exemption amount—estimated to be approximately $7 million—subject to federal gift or estate tax of 40%. In 2025, the federal exemption rises to $13.99 million, or $27.98 million for married couples, making this a critical window for planning.

This provides a potential planning opportunity for business owners to transfer assets and future asset growth out of their estate before 2026. The implications are substantial—the federal estate tax can reach rates as high as 40% on estates exceeding the exemption threshold, which for high-net-worth entrepreneurs could mean millions of dollars lost to taxes instead of being passed on to heirs.

Key Succession Planning Strategies

At a minimum, a business succession plan should address the systematic transfer of the management and ownership of a business. Here are the most effective approaches:

Family Transfers and Gifting

Small business owners can leverage the annual gift tax exclusion ($19,000 per individual/$38,000 per married couple in 2025) to transfer ownership over time, using this one-time tax exemption to gift interest in the business to heirs while the business value is still low enough to meet exemption limits.

By gifting assets during your lifetime, you also reduce the value of your gross estate, which can lower your estate tax liability. However, careful timing is essential to maximize these benefits before the exemption reductions take effect.

Trust-Based Strategies

You may be able to transfer your business assets to your children and retain a source of income for yourself by establishing a grantor retained annuity trust (GRAT) or grantor retained unitrust (GRUT). The IDGT takes advantage of estate tax exemptions to avoid taxes on the transfer of the business and removes future appreciation from the business owner’s estate and hands that value to the next generation.

Trusts, such as grantor retained annuity trusts (GRATs) or irrevocable life insurance trusts (ILITs), can be powerful tools to transfer wealth while minimizing estate and gift taxes.

Buy-Sell Agreements

If your business has one or more co-owners, you might consider establishing an agreement that upon the death of any owner, their interest is automatically purchased by the other owner(s), known as a buy-sell agreement, ensuring that beneficiaries don’t unintentionally become owners.

Tax Considerations You Can’t Ignore

Business owners need to keep in mind that they may have to pay capital gains tax on the sale of their company. If ownership is being transferred to children, grandchildren and/or current managers, there will be income tax implications to consider, and capital gains tax will come into play if company stock is being transferred to a family member who then sells that stock.

Selling a business outright or transferring appreciated assets can trigger capital gains taxes, but structuring the sale as an installment sale, where payments are spread over time, can defer and potentially reduce these taxes.

The Importance of Professional Guidance

The complexities of tax law require expertise, and entrepreneurs should assemble a team of professionals, including a tax advisor, estate planning attorney, accountant, and financial advisor to design a succession plan tailored to their business and personal goals.

When searching for qualified professionals to help with your business succession planning, working with an experienced accountant greeley can provide the specialized tax expertise needed to navigate these complex decisions. All County Tax Resolution specializes in helping business owners resolve tax challenges and plan for their financial future, offering services that include advanced tax planning, QuickBooks advisory services, and comprehensive accounting support.

Start Planning Now

Tax planning for business succession isn’t a last-minute task—it’s a long-term strategy. The earlier you start, the more options you have to minimize taxes, as transferring ownership gradually over years can leverage annual gift tax exclusions and lower the overall taxable value of the estate.

A well-thought-out business succession plan is essential for securing your business’s future. It’s not just about preparing for retirement; it’s about ensuring smooth operation if something unexpected happens, protecting your family’s financial stability, ensuring employee welfare, and preserving the legacy you’ve worked so hard to build.

Understanding your business’s worth helps minimize tax burdens and optimize strategies for estate and inheritance taxes while helping avoid unexpected liabilities that may emerge after the transition. With the upcoming changes to estate tax exemptions in 2026, there’s never been a more critical time to act.

Don’t let poor planning erode the value you’ve spent a lifetime building. Start your succession planning today to ensure your business legacy continues exactly as you envision it.