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• Estate Planning Overview

Succession Planning for a Business

Adequate planning can ensure your business will be preserved as you want it to be.

If you have your own business, you may wish to keep the business within your family or sell it, before or after you pass away. Regardless of which option you choose, careful planning will ensure the business can stay up and running and be protected from large, unexpected tax liabilities.

Does a business you own go through probate?

YES, all assets, including business assets, generally must go through probate (unless the assets allow for the naming of beneficiaries).

However, certain trusts ( GRATs or GRUTs ) can be established during your lifetime that will allow any subsequent growth of the trust assets to pass outside of your taxable estate. It is important to consult with an attorney and/or tax advisor about your specific circumstances.

It is advisable to consult an attorney or tax advisor with expertise in this area.

Special tax considerations

It's important to understand that the value of your business may continue to grow between the time you plan your estate and when you pass away, and that the taxable estate will include the value as of your date of death.

Leaving a business to co-owners

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 , this arrangement can ensure that beneficiaries of the deceased owner (including spouses or other family members) don't unintentionally become owners. Life insurance can be purchased or an irrevocable life insurance trust (ILIT) can be established to cover these buy-sell agreements and provide necessary liquidity.

Creating a succession plan

At a minimum, a business succession plan should address the systematic transfer of the management and ownership of a business.

Management succession planning may include:

• Development, training, and support of successors.
• Delegation of responsibility and authority to successors.
• Outside directors/advisors to bring objectivity to the process (when necessary).
• Maximizing retention of key employees through equitable compensation planning for management, family/non-family employees, and active/inactive shareholders.

Ownership transfer planning considerations may include:

• Coordination between who will own the business and who will manage the business.
• Consideration of the best interests of the business and the owner's family.
• Timing of a transfer of the business during your lifetime. This may provide you with the opportunity to consult with the successor(s), and generally reduces the risk of a discounted sale of the business.

Steps to help minimize taxes and avoid probate

The gap between what your business is worth while you plan your estate and what it is worth when you pass away, as well as other liquidity problems, may be managed by creating an ILIT. If the ILIT is structured correctly, the benefits paid from the underlying insurance policy do not pass through probate and are available immediately, providing cash for estate taxes and other needs.

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) . If the assets grow over the terms of the trust, the appreciation will not be subject to estate taxes, so these trusts can be effective tools for passing on a rapidly growing business.

To achieve the estate tax benefits of this type of trust, the trust must be structured precisely and you must outlive the terms of the trust. You may mitigate this risk by structuring an ILIT for wealth replacement to help offset the potential tax liability that would occur if you die before the trust expires.

Another approach is the family limited partnership or a family limited liability company . For example, you can form a limited partnership to hold the business assets. Some of the limited partnership units can be transferred to your successors, potentially eliminating the units from your taxable estate. Because limited partnership interests do not carry control of the partnership, the value of the transferred assets may be discounted for gift tax purposes. As with GRATs and GRUTs, family limited partnerships are subject to complex rules and it is advisable to consult with experienced tax and estate planning professionals.

Reviewing & updating your estate plan Keeping your estate plan up to date is just as important as creating it.

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grantor retained annuity trust (GRAT)

irrevocable trust that pays a fixed annuity to the grantor for a defined term, with the remainder of the trust passing to a noncharitable beneficiary

Estate Planning and Inheritance Glossary

grantor retained unitrust (GRUT)

trust that pays a fixed percentage back to the donor for a period of time; designed for the transfer of business or property assets and shifts future appreciation to children through the use of gift tax rather than estate tax

buy-sell agreement

for business with multiple owners; legal contract that stipulates the terms for remaining owners to purchase the interest of one that is departing

irrevocable life insurance trust (ILIT)

irrevocable trust funded with a life insurance policy and designed to exclude life insurance proceeds from the taxable estate while providing liquidity to the estate and/or the trust's beneficiaries; it generally cannot be changed once it is created

family limited partnership

partnership arrangement designed for the transfer of business, property, or other assets between family members, often from parents to children, in an effort to minimize estate tax liability and possibly provide protection from creditors

family limited liability company

entity designed for the transfer of a business, property, or other assets from parents to children to minimize estate tax liability and possibly provide protection from creditors

Original text

If you own a business, there’s a good chance it’s one of your most valuable assets--if not the most valuable. Not just a major source of income, your business is also the culmination of a dream and in some cases the livelihood of others.

For this reason, it makes good sense to put together a business estate plan that covers your company’s assets, trade secrets, and organizational structure so that forces beyond your control don’t slow it down.

Business estate planning covers all the bases against your death or that of a partner, but also if a business partner decides to move on. In either case, you’ll want to begin by deciding what happens in such situations. A buy-sell agreement is a formal document that protects all the partners in a business when one of them passes away or decides to sell their share of the company, and makes it clear whether there’s a successor to that partnership or it just gets dissolved.

Estate planning for a business with two or more partners requires that everyone put their heads together to decide how this all shakes out to the benefit of the partnership. A successor might be chosen, for example, like the descendant of the deceased partner, or the owners might choose against that option if it’s not in the best interests of the business. Some estate planners recommend that partners take out life insurance policies that can be used to buy the deceased partner’s shares from his or her estate.

This is also a good time to take stock of what the business is worth and what value you as the owner bring to it. If you liquidated everything--inventory, computers, furniture--what would you be left with? And what about business relationships and arrangements that keep everything spinning, like vendors, bank accounts, lines of credit, and so on? If you’re the only person running the business, you might forget about all the online bank accounts, email accounts, file sharing sites, social networking accounts, and such that would be inaccessible if you weren’t there to furnish the usernames and passwords. A documented plan in place to preserve and transfer this knowledge can prevent a perfectly healthy business from taking an unfortunate tumble.

Overall, estate planning for a business is just as important, if not even more important than estate planning for an individual. Depending on the size of your company you might consider speaking with an attorney to get a fresh set of eyes looking at your situation. Because life is full of constant changes, you’ll want to revisit your business estate plan every few years to account for marriages, children, and the ever-changing situations of your company’s stakeholders.

Taking Over Your Family’s Business? How to Transition Peacefully Don’t let the pressure of taking over your family’s business wear on you. Instead, take steps for a smooth transition.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

Estate Planning Considerations for Small Business Owners

by ACTEC Fellows Natalie M. Perry and Michaelle D. Rafferty

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Small business owners should include their business in their estate plan to ensure a smooth transition of ownership and management in case of incapacity or death, preventing disruptions to the company. It also helps minimize potential estate taxes and provides financial security for their heirs or chosen successors.

ACTEC Fellows Michaelle Rafferty and Natalie Perry , estate planning attorneys, discuss the impact of state laws, multiple beneficiaries, keeping a business in trust, and how to plan for estate taxes in this short video.

Hello. My name is Michaelle Rafferty. I am a Fellow with ACTEC from Reno, Nevada, and we’re here today with Natalie Perry.

I’m Natalie Perry, an ACTEC Fellow from Wheaton, Illinois.

Estate Plan Considerations for Business Owners

We’re going to talk a little bit about estate planning for your small business. I get asked this question quite a bit, and I’m wondering if you can share with our audience — what type of things do we need to worry about with our businesses in our estate planning process?

Natalie Perry:  Yes. It’s important to think about estate planning if you have a business because there are a lot of things you want to think about ahead of time, and a lot cannot go the way you might intend if you don’t take any action. So, one thing to think about is that if you don’t have an estate plan, then state law, depending on the state you live in, would dictate where your business goes. Generally, states provide that assets go half to your children and half to your spouse, but it depends where you live. A lot of business owners may not want their business split between two beneficiaries  – like half to the spouse, half to the children. So, you have to have a will or trust, depending on your estate plan, that would dictate where your business goes. One of the things to think about is who is in charge of your business if you pass away, and there are a lot of considerations there as well. Your spouse may not be the best person, but it may be that there’s a key employee or another friend or executive at the company that could help run the business if you weren’t around.

Michaelle Rafferty:  So, if I have my spouse as my executor or trustee  of my estate, that doesn’t mean that that’s who has to run the business?

Natalie Perry:  If your spouse is the only executor or trustee, then they would be in charge of distributing or selling your business either to themselves or selling it to a third party and then retaining the assets in the estate for the beneficiaries. But you may want to have two trustees: like your spouse for your financial assets — like your cash or your home — and then someone else for your business. That kind of just depends on your family situation and how involved your spouse is in your business and whether he or she is a good choice.

Michaelle Rafferty:  Does it matter what type of business I have?

Natalie Perry:  It may, to some degree, if your business is going to go to somebody and stay in trust. For example, let’s say your spouse should have the income from the business during the rest of her lifetime but maybe isn’t the best person to run it, then there could be some tax considerations that you have to consider depending on the type of trust that your spouse has after you die. The reason to retain the business in a trust may be so that someone else could run it; or perhaps you have a buy-sell agreement where a third party has agreed to buy out your interest, or another partner, that’s pretty common – like another owner buys out your share. So, if you have an S corporation versus an LLC, some of the same planning considerations will apply, but it’s important to make sure you talk to someone so that you address any special tax rules.

Michaelle Rafferty:  What about if I want to sell the business? I don’t think that my husband is going to be able to keep it and they’re going to have to sell it. Will he be able to do that?

Natalie Perry:  Yes. The person who inherits the asset or is in charge of the estate can definitely sell the business. Sometimes some alternatives to that are a special child might be involved in the business, and they may get the assets. Sometimes, like I said, the co-owner may buy out the shares. There are a lot of different ways to either sell it or distribute it. It kind of depends on the customer base and whether the business is likely to continue after the death of the owner.

Michaelle Rafferty:  How much does it matter what state I’m in?

Natalie Perry:  Well, the state law is going to dictate where it would go if you don’t have an estate plan. So, that’s an important consideration. Each state also has its own estate tax limits, so although the federal estate tax limit is very high right now, it could be that the state you’re in has an estate tax that may impact your business, or impact the value of your estate and therefore, your business, because if you want to keep the business in the estate and then there’s an estate tax, you may need to do some special planning like buy some life insurance or make sure your estate has enough liquidity. One additional point on top of that is if you give your business to one child and then the other children are getting your home or some other assets that you may have, you want to make sure you are being fair, and that can be difficult to do. So, you want to make sure your state law doesn’t have an unexpected consequence when you leave your business to your children or spouse.

Michaelle Rafferty:  Well, thank you. This has been very informative, and I thank you for joining us.

Natalie Perry:  Thank you.

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Estate plan strategies for small business owners

What happens to your business after your death depends a lot on decisions you make now.

Ready to start your estate plan?

by   Kylie Ora Lobell

Kylie Ora Lobell is a freelance copywriter, editor, marketer, and publicist. She has over 10 years of experience writ...

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Updated on: October 25, 2023 · 4 min read

How estate planning applies to a business

What is a succession plan, who should be involved in estate and succession planning.

Lee A. Ciccarelli, founder of Pennsylvania litigation law firm Ciccarelli Law Offices, has witnessed many businesses cease to exist after one or both owners have died.

In the legal space, small to midsize law firms often collapse under the weight of the passing of the rainmaker, the principal, or attorneys essential to its success. With mom and pop businesses, similar situations occur.

Ciccarelli says, "There literally is no one to oversee the continuation of the business, causing significant if not complete loss of value of the business, as well as loss of appointment [to future leadership roles] of those employees associated with the business."

To prevent a business from dying along with its owners, small business owners need to have an  estate planning  strategy in place.

Estate planning entails planning for the future before you pass away. It involves a series of legal documents —like a will/trust, a letter of intent, and beneficiary designations—that explicitly describe what you want to happen with your assets when you die. These documents will detail who will receive your assets and when.

In terms of a business, estate planning includes determining what you want to have happen to your business and its assets after you're gone, as well as who will run it. You'll need to figure out how to write a succession plan as well as a buy-sell agreement , a legal contract that describes what happens to a partner's portion of the business after their death. The buy-sell agreement often is funded by life insurance .

Why is estate planning important? David Reischer, Esq., CEO of LegalAdvice.com says, "The act of 'planning' is critical to just about every aspect of business, and estate planning is no exception to that rule."

Attorney Kyle Lippard of Danielson Law Firm echoes a similar sentiment. "Providing for your business in your estate plan is essential to ensuring the business transitions to the next generation of heirs to run, or sold to someone outside the family for a fair price."

A succession plan details who you want to run your business after you're gone, whether it's a family member, an employee, a partner, or an external stakeholder you want to sell your business to. You may include one person or provide lines of succession in the event that someone is not able to step up to the plate.

If you don't have a succession plan, then "heirs with equal ownership/right to manage after death may not agree on critical aspects of the business," says Lippard. "These disagreements may lead to delays in the work of the business or, in some cases, can lead to litigation if the issues are serious enough. Without a succession plan, someone with no knowledge of the business could end up being left with ownership or management."

Reischer says he has seen the downside of not having a succession plan. "I have witnessed several small businesses struggle when heirs took over the business with no familiarity of the day-to-day operations. It is pure chaos and could be totally avoided with some planning."

A business owner and their partners should be involved in the estate planning and succession planning process. However, the kind of business structure under which you operate will determine how you write your succession plan.

According to Reischer, in partnerships and sole proprietorships, the managers and owners can make succession decisions on their own. However, if you have a corporation with a board of directors, you'll need to follow the formalities dictated by the corporate bylaws and rules.

"A person or persons contemplating the sale of a business interest will need a formal contract that outlines the specifics of the succession plan," Reischer says. "A party may choose to sell the business interest outright in return for cash or other assets. The principals will need to agree on all the formalities such as timing, money, condition, tax consequences, and any other issues that are important to any of the parties involved."

Estate planning can save business owners, their families, their beneficiaries, and all other parties both time and energy. It is crucial that owners get started with estate planning as soon as possible, before it's too late.

As Ciccarelli says, "Where an estate plan is in effect, there can be an orderly organization of the business management model to ensure the longevity and continuation of the business—as well as the sustainability of the business—and economic benefit to the beneficiaries, employees, and their families."

Estate planning for your business is as important — to your family and your associates — as personal estate planning is to your loved ones. Rather than leaving the future to chance, successful small business owners need to include business estate planning as part of their ongoing strategy for managing their businesses.

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Securing Your Legacy: The Importance of Estate Planning for Small Business Owners

Estate planning is not just a task for the wealthy, it's a critical step for small business owners looking to protect both their personal and business assets. This guide explains why every small business owner needs an estate plan and how it can safeguard your business's future, ensure a smooth succession, and provide peace of mind for you and your loved ones. Understanding the key components of a solid estate plan and the role of experienced estate planning lawyers can make all the difference in securing your legacy.

Why Do Small Business Owners Do Estate Planning?

Small business owners engage in estate planning to ensure their business and personal assets are protected and properly transferred to their chosen beneficiaries. Estate planning offers a strategic approach to deal with unforeseen events such as illness, incapacity, or death, ensuring that the business can continue to operate smoothly or be transferred according to the owner's wishes.

The Core Elements of an Estate Plan for Business Owners

A comprehensive estate plan for a small business owner typically includes creating a succession plan for the business estate plan.

• A will or trust to handle the distribution of assets, which can specify medical decisions and include terms for transferring a business.
• A succession plan detailing the future leadership of the business.
• Powers of attorney for financial decisions and healthcare directives.
• A buy-sell agreement among business partners.
• Life insurance policies to cover debts, taxes, and provide for beneficiaries are essential in securing the financial future of your business may it continue without you.

Succession Planning: Ensuring the Future of Your Small Business

Succession planning is crucial for small business owners. It involves deciding who will take over the business in your absence. Without a clear plan, your business could face uncertainty or conflicts among family members or partners, highlighting the importance of careful planning and including the business in your estate plan. A well-thought-out succession plan helps ensure a smooth transition, maintaining the business's continuity and value.

Understanding Estate Taxes and How to Minimize Them

Estate taxes can significantly impact the assets you leave behind, especially for a family business. Proper estate planning helps minimize estate taxes, ensuring your beneficiaries receive more of your hard-earned assets, which should include in your estate plan to protect your personal estate. Strategies may include setting up trusts, making charitable donations, or utilizing gift exemptions. Consult with an estate planning attorney to understand the best tactics for your situation, including adding medical decision-making authority as part of your estate plan.

The Role of Trusts in Protecting Business and Personal Assets

Trusts play a vital role in estate planning by offering control over how your assets are distributed and when, according to the terms of the trust. They can also provide tax benefits and protect your assets from probate and creditors, crucial for maintaining a family business intact and an essential aspect to include in your estate plan. For business owners, trusts ensure that the management and ownership of the business pass to the intended persons under the terms you specify.

Why Every Business Owner Needs an Estate Plan

An estate plan is essential for every business owner because it helps to keep the business thriving across generations.

• Protects your business and personal assets.
• Ensures your business's legacy continues as you intended, through careful planning and by including it in your estate plan.
• Provides for your family and employees even after you're gone, highlighting estate planning tips that ensure your personal estate fulfills your wishes.
• Helps minimize potential disputes among heirs or business partners.

How to Create a Business Succession Plan

Creating a business succession plan involves several steps:

• Identifying potential successors, whether family members, employees, or external parties.
• Determining the value of your business is pivotal to guide financial decisions in the succession plan, ensuring you can run your business effectively even in your absence.
• Developing training and transition plans for the new leadership.
• Legal documentation to make the succession plan official, which is a pivotal step in transferring a business as part of your estate plan.

Estate Planning Tools Every Small Business Owner Should Consider

Several estate planning tools are particularly beneficial for small business owners looking to create a succession plan as part of their personal estate planning.

• Buy-sell agreements to outline what happens to your business share upon your death.
• Life insurance to provide liquidity for your estate or buy out your business interests.
• Revocable living trusts to avoid probate and provide clear instructions for asset distribution, detailing the terms of the trust and how it fits into your overall estate planning strategy.

How Our Law Firm Can Assist with Your Estate Planning Needs

O ur experienced estate planning attorneys at Masterly Legal Solutions specialize in addressing the unique needs of small business owners. We can help you include in your estate plan strategies to make medical decisions and handle medical treatment advance directives.

• Develop a comprehensive estate plan that includes both your personal and business assets to safeguard your family business.
• Create a tailored business succession plan.
• Minimize your estate's tax liabilities by considering the tax implications of transferring a business.
• Ensure your estate plan remains up-to-date with changes in your business or personal life to keep the business on a successful track.

Partnering with an Estate Planning Lawyer: A Smart Choice for Business Owners

Partnering with a knowledgeable estate planning lawyer ensures your estate plan is comprehensive, legally sound, and tailored to your specific needs. An attorney can guide you through the complexities of estate planning, helping protect your business and personal assets for the future.

Be sure to contact us at (972) 236-4836 so we can schedule a free consultation to discuss your estate plan!

Frequently Asked Questions

What is estate planning and why is it important for small business owners.

Estate planning involves creating a set of legal documents to manage and distribute your assets after you pass away. For small business owners, estate planning is crucial as it ensures that your business and personal assets are handled according to your wishes.

What are some estate planning documents that small business owners should consider?

Small business owners should consider creating a will, financial power of attorney, and healthcare power of attorney. These documents help ensure that your business and personal affairs are managed properly in case you become incapacitated or pass away, making them a critical part of your estate plan.

How can insurance coverage benefit small business owners in estate planning?

Insurance coverage, such as disability insurance and life insurance, can provide financial security for your family and business in the event of your passing or disability. This can help cover expenses and mitigate financial risks.

What are some tips for business owners when it comes to estate planning?

Some tips for business owners include working with a financial advisor or attorney to create a solid succession plan, regularly reviewing and updating your estate plan as needed, and considering setting up a trust or family limited partnership to protect your assets.

What are the tax implications of estate planning for small business owners?

Small business owners need to carefully plan their estate to minimize potential tax liabilities. This includes considering gift tax implications, the management of the business after the owner's passing, and the transfer of business ownership to family members or other parties.

How can small business owners ensure that their business continues to run smoothly after their passing?

By including a solid succession plan in their estate planning, small business owners can designate who will take over the business and how it will be managed. This helps ensure a smooth transition and continuity for the business.

When should small business owners seek the advice of an attorney or tax professional for estate planning?

Small business owners should consult with an attorney or tax professional when creating their estate plan, especially in complex situations involving multiple owners, transferring business ownership, or dealing with potential tax implications. Professional guidance can help ensure that the plan is legally binding and meets the owner's goals, crucial for a business owner's estate planning process, and can include important estate planning tips.

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Six Estate Planning Tips for Small Business Owners

Estate planning for business owners is one of the most important but overlooked parts of setting up a business.

Often, folks wait until it’s too late to have conversations about their wishes for their small business after they pass on.

When setting up your business, estate planning for small business owners can be an essential component of preparing for long-term success. 

Your business is likely one of your greatest assets, and it’s something you should protect with plans and insurance while you’re alive.

Don’t let all your hard work go to waste after you’re gone. Talking to a local business estate planning lawyer is the first step in helping protect your greatest asset, your business.

At Massingill , we can help you navigate all aspects of estate planning. To help you prepare, we’ve compiled the six top estate planning tips for small business owners.

1: Draft or Update a Will and Estate Plan

A will and an estate plan can be foundational documents for your business. And talking to an estate lawyer is the first step in drafting a solid estate plan for your business.

If you die without a will, figuring out how to pass down your company and its assets can become expensive and time-consuming for your heirs. Make sure you avoid this preventable confusion by putting your will and estate plan into place as soon as possible.

2: Communicate Openly About Your Business Succession Plan

A business succession plan discusses how you want your business run after you’re gone. Talk about your succession plans with your family and business partners.

Succession plans work best when you work with your heirs and partners to put them into place while you’re alive. An experienced Austin, Texas business estate planning lawyer can help you develop your succession plan today.

3: Draft a Buy-Sell Agreement (for Businesses with Multiple Owners)

For a business with multiple owners, creating a buy-sell agreement can help ease confusion after one owner dies. A buy-sell agreement allows any of the following to happen upon your death:

• Your business partners can purchase your interest in the business;
• Your heirs can inherit your share of the business under your will;
• Your interest can be sold to a third party; or
• You can block a third party from purchasing your interest in the business.

Make sure you speak to a lawyer and make your desires known. Having a buy-sell agreement in place as part of your estate plan can help open conversations in multiple-owner businesses.

It can also ease transitions when one owner exits or dies.

4: Focus on Tax Efficiencies

Taxes are one of the biggest concerns for any business owner trying to create an estate plan. One of the key issues in creating a solid plan is reducing the need to sell parts of your business to pay estate tax.

Developing your estate plan with an experienced Texas estate planning lawyer can help you understand your potential liabilities. An estate planning lawyer can also help you understand your options for minimizing those liabilities and protecting your business and your heirs.

5: Confirm You Have Enough Insurance

Life insurance and liability insurance can be a lifesaver for your heirs. Make sure you have enough of both when you’re doing your estate plan for your small business.

You should consider buying enough life insurance so that your heirs or business partners have the liquidity to finalize your business affairs after your death.

It’s also a good idea to pay the liability insurance for a certain period beyond your death. This can help your heirs in the event that a customer or client brings a lawsuit after your death. 

6: Maintain Proper Records (and Disclose Where They’re Kept!)

Any estate lawyer will tell you that an estate plan is only as good as the paper it’s written on. Unfortunately, many people write estate plans and then secure them in places where no one can find them. Don’t let this happen to you.

Maintain proper records of your estate planning. Keeping your will and other estate documents with your estate planning lawyer is a great idea. Let your family and business partners (if applicable) know your lawyer’s contact details. 

How We Can Help

Our law firm serves Texas businesses like yours who want to prepare for the future.

Attorney Joshua Massingill and his team have helped many Texas small businesses understand their estate planning options. We have abundant experience in estate planning for businesses.

Contact us today to book a consultation to discuss your business’s future. We’re standing by and excited to speak with you.

Joshua Massingill

Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.

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Estate Planning for Business Owners

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on February 27, 2024

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Table of contents, what is estate planning for business owners.

Estate planning is a vital element of financial planning for everyone, but its significance is particularly magnified for business owners.

Estate planning for business owners involves the planning and management of a business owner's assets in the event of their death.

Business owners who want to ensure that their hard-earned assets are distributed according to their wishes and minimize the impact of taxes and other expenses should engage in estate planning.

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My expertise in Estate Planning for Business Owners revolves around creating tailored strategies that ensure smooth business succession and asset protection. By integrating living trusts, buy-sell agreements, and life insurance policies, I've helped clients like a retail business owner successfully plan for unforeseen circumstances, securing their family's future and the business's continuity. Ready to safeguard your business and family's future? Let's discuss a personalized estate plan that works for you.

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Key Considerations for Estate Planning for Business Owners

When it comes to estate planning for business owners, there are several key considerations that must be taken into account.

Business Succession Planning

Business succession planning is an essential aspect of estate planning for business owners.

Succession planning involves identifying and preparing the next generation of business leaders to ensure a smooth transition of the business's ownership and management.

This may involve transferring ownership to family members or selling the business to a third party.

One of the primary goals of succession planning is to minimize the potential for disputes among family members or business partners.

This can be achieved by establishing a clear plan for the transfer of ownership and management, including the roles and responsibilities of each individual involved in the business.

A well-designed succession plan can also ensure the continuity of the business and preserve the legacy of the business owner.

Tax Planning Strategies

Estate planning for business owners also involves identifying tax planning strategies to minimize the impact of taxes on the estate .

Business owners should work with their estate planning attorney and financial advisor to identify tax-efficient strategies for transferring assets to their heirs.

One of the most effective tax planning strategies for business owners is to use a combination of estate planning tools such as trusts , gifts, and life insurance policies.

These tools can help to minimize estate taxes, capital gains taxes, and income taxes on the estate.

Identifying Key Assets and Beneficiaries

Identifying key assets and beneficiaries is another critical consideration in estate planning for business owners.

Business owners should take inventory of all their assets, including the business, real estate, personal property, investments , and other assets .

They should also identify their beneficiaries and determine how they want their assets to be distributed among them.

Business owners should consider the potential tax implications of their estate plan and how it may affect their beneficiaries.

For example, if the estate plan involves transferring a business to a family member , the tax implications of such a transfer should be carefully evaluated.

Minimizing Probate and Estate Administration Costs

Probate and estate administration costs can significantly reduce the value of an estate. Business owners should work with their estate planning attorney to minimize these costs by using strategies such as trusts and other estate planning tools.

A revocable living trust is an excellent tool for avoiding probate and reducing estate administration costs. Assets held in a revocable living trust are not subject to probate and can be distributed to beneficiaries without the need for court intervention.

Protecting Business Interests and Intellectual Property

Business owners should also consider how their estate plan will protect their business interests and intellectual property.

This may involve establishing trusts or other legal structures to protect the business's assets and intellectual property rights.

For example, a business owner may establish a family limited partnership to transfer ownership of the business to their heirs while still retaining control over the business's operations.

This helps ensure that the business continues to operate as intended and that the owner's legacy is preserved .

Steps in Estate Planning for Business Owners

The estate planning process involves several steps that must be carefully followed to ensure the plan is comprehensive and legally binding.

Assessing Estate Planning Needs and Objectives

The first step in estate planning for business owners is to assess their estate planning needs and objectives.

This involves taking inventory of all assets and liabilities , identifying potential tax implications, and determining how the assets should be distributed among beneficiaries.

Identifying and Valuing Assets

Once the estate planning needs and objectives have been identified, the next step is to identify and value all assets.

Business owners should take inventory of all their assets, including their business, real estate, personal property, investments, and other assets.

They should also determine the value of each asset and the potential tax implications of transferring ownership.

Choosing an Estate Planning Attorney and Other Professionals

Business owners should work with an experienced estate planning attorney and other professionals, such as a financial advisor or accountant, to help them navigate the complexities of estate planning.

An estate planning attorney can help business owners to create a comprehensive estate plan that addresses all their needs and objectives.

Creating and Implementing an Estate Plan

The next step in estate planning is to create and implement an estate plan. The estate plan should be comprehensive and include all the necessary legal documents such as wills, trusts, powers of attorney , and health care directives.

Business owners should also ensure that their beneficiaries are aware of their estate plans and understand how their assets will be distributed.

Updating the Estate Plan as Needed

Estate planning is an ongoing process, and business owners should review and update their estate plans regularly.

Changes in the business or personal circumstances may require changes to the estate plan. For example, if a business owner acquires new assets or has a new child, they may need to update their estate plan to reflect these changes.

Common Estate Planning Tools for Business Owners

Estate planning for business owners involves several legal tools that can be used to ensure the proper distribution of assets and protect business interests.

Wills and Trusts

A will is a legal document outlining how a person's assets will be distributed after death . A trust is a legal entity that holds assets on behalf of the beneficiaries. Trusts can be revocable or irrevocable and can be used to avoid probate and minimize estate taxes.

Powers of Attorney

A power of attorney is a legal document that gives a person the authority to act on behalf of another person in financial and legal matters. Business owners should consider appointing a power of attorney to manage their affairs in the event of incapacity.

Health Care Directives

A health care directive, also known as a living will , is a legal document that outlines a person's wishes for medical treatment in the event of incapacity.

Business owners should consider creating a health care directive to ensure that their wishes are followed if they are unable to make medical decisions for themselves.

Buy-Sell Agreements

Buy-sell agreements are legal agreements between business owners that outline the terms of a buyout in the event of one owner's death or incapacity.

These agreements can ensure a smooth transition of ownership and management of the business.

Life Insurance

Life insurance is an essential tool for estate planning for business owners. Life insurance can provide liquidity for the estate and ensure that the business can continue to operate after the business owner's death.

Business owners should work with their financial advisors to determine the appropriate amount of life insurance coverage for their estate planning needs.

The Bottom Line

Estate planning holds significant importance in financial planning for individuals, but it holds even greater importance for business owners.

Business owners should consider key considerations such as business succession planning, tax planning strategies, identifying key assets and beneficiaries, minimizing probate and estate administration costs, and protecting business interests and intellectual property.

The steps involved in estate planning for business owners include assessing estate planning needs and objectives, identifying and valuing assets, choosing an estate planning attorney and other professionals, creating and implementing an estate plan, and updating the estate plan as needed.

Common estate planning tools for business owners include wills and trusts , powers of attorney, health care directives, buy-sell agreements, and life insurance.

Business owners should work with their estate planning attorney and financial advisor to create a comprehensive estate plan that addresses all their needs and objectives.

It is important to seek professional advice for estate planning to ensure that the estate plan is comprehensive and legally binding.

Estate Planning for Business Owners FAQs

What is estate planning for business owners.

Estate planning for business owners is the process of planning and managing a business owner's assets in the event of their death. It involves ensuring that their assets are distributed according to their wishes, minimizing taxes and other expenses, and protecting their business interests.

Why is estate planning important for business owners?

Estate planning is critical for business owners because it allows them to protect their business interests and ensure a smooth transition of ownership and management in the event of their death. It also helps to minimize the impact of taxes and other expenses and ensures that their assets are distributed according to their wishes.

What are some key considerations in estate planning for business owners?

Some key considerations in estate planning for business owners include business succession planning, tax planning strategies, identifying key assets and beneficiaries, minimizing probate and estate administration costs, and protecting business interests and intellectual property.

What are some common estate planning tools for business owners?

Common estate planning tools for business owners include wills and trusts, powers of attorney, health care directives, buy-sell agreements, and life insurance.

Do business owners need to seek professional advice for estate planning?

Yes, business owners should seek professional advice for estate planning. Estate planning can be complex, and there are many legal and financial considerations that must be taken into account. Working with an experienced estate planning attorney and financial advisor can help to ensure that the estate plan is comprehensive and legally binding.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Estate Planning for Small Business Owners: Protecting Your Business and Your Legacy

Your small business is not just a source of income, but also a reflection of your hard work and dedication. Leaving your investment up to chance could come with costly consequences. Instead, estate planning can help to protect both your business and your legacy. This comprehensive process ensures that your business continues to thrive after your passing and that estyour loved ones are taken care of. 

The Significance of Estate Planning for Small Business Owners

Many small business owners overlook the importance of estate planning, assuming it only applies to individuals with vast wealth. However, estate planning is equally crucial for entrepreneurs, as it ensures a smooth transition of business ownership and protects the interests of all stakeholders. Without proper planning, your business may face complications, disputes, or even dissolution upon your incapacity or demise. Estate planning provides you with the peace of mind that your hard-earned business and legacy will be secure.

Key Components of Estate Planning for Small Business Owners

Will and trusts .

A will is a fundamental document that outlines your wishes regarding the distribution of assets, including your business. It appoints an executor who will manage your estate and ensures your intentions are carried out. Establishing a trust, such as a revocable living trust, allows you to transfer ownership of your business to specific beneficiaries while avoiding probate and maintaining privacy.

Succession Planning

Succession planning is vital for small business owners, as it ensures a smooth transition of ownership and management. Identify and groom potential successors within your organization or consider selling your business to a trusted employee, family member, or partner. Establish a clear plan to avoid disputes and maintain the continuity of your business operations.

Buy-Sell Agreements

Buy-sell agreements provide a mechanism for the orderly transfer of business interests in the event of an owner’s death, disability, or retirement. These agreements establish the terms and conditions for the purchase and sale of shares among the remaining owners or the business itself. This helps maintain stability and protects the interests of both the departing owner’s family and the surviving owners.

Power of Attorney

Granting a power of attorney allows you to appoint someone you trust to make decisions on your behalf if you become incapacitated. This individual can ensure that your business affairs are managed effectively during your absence, protecting the continuity of operations and preserving the value of your business.

Benefits of Estate Planning for Small Businesses

Continuity in times of transition.

Small businesses are not immune to change. Whether it’s due to retirement, illness, or unexpected circumstances, the need for leadership transitions can arise at any time. Estate planning enables small business owners to proactively prepare for these transitions, ensuring a smooth continuation of operations. By identifying potential successors, establishing clear succession plans, and outlining responsibilities and decision-making authority, small businesses can navigate these changes seamlessly, minimizing disruptions and preserving the value they have built.

Protecting Business Assets

A small business is more than just a source of income; it is a culmination of hard work, dedication, and passion. Estate planning safeguards these valuable assets from unforeseen events or potential legal disputes. By establishing legal structures, such as trusts or family limited partnerships, small business owners can protect their business assets from creditors, lawsuits, or family conflicts. This preservation of business assets ensures the stability and longevity of the business, allowing it to continue thriving even in challenging circumstances.

Minimizing Tax Burdens

Tax obligations can significantly impact the financial health of a small business. Small business owners often find themselves burdened by tax obligations, which can hinder their ability to reinvest in the business or pass on wealth to future generations. Estate planning provides opportunities to minimize tax liabilities through various strategies. For example, small business owners can leverage the annual gift tax exclusion by gifting shares of the business to their beneficiaries during their lifetime. This not only reduces the value of the taxable estate but also provides a means of transferring ownership gradually, ensuring a smooth transition and potentially lowering overall tax liabilities.

Facilitating Business Buyouts

In the event of an owner’s retirement, incapacitation, or death, small businesses may face the challenge of buyouts. Estate planning can provide solutions to facilitate these buyouts and ensure fair treatment for all parties involved. Buy-sell agreements, funded by life insurance policies or established through well-crafted legal arrangements, can determine the transfer of ownership, the valuation of the business, and the financial terms. This structured approach minimizes potential disputes, ensures the financial security of the departing owner or their family, and allows the business to continue without disruptions.

Preserving the Entrepreneur’s Legacy

Small business owners invest not only their time and resources but also their passion and vision. Estate planning allows entrepreneurs to preserve their legacy by specifying their wishes for the future of their business. Through the establishment of clear instructions, small business owners can ensure that their values, mission, and long-term objectives are carried forward. This preservation of the entrepreneur’s legacy fosters a sense of continuity and provides a foundation for future success.

Family and Personal Security

Small businesses are often family-run ventures, and estate planning can provide much-needed security for both the business and the family. By structuring ownership and management responsibilities, setting up trusts for minors, and designating guardianship, small business owners can protect their loved ones’ financial well-being and ensure a smooth transition of both personal and business affairs. Estate planning allows small business owners to provide for their family’s immediate and long-term needs, ensuring their continued welfare and peace of mind.

Estate planning encompasses not only the business, but also personal considerations. Small business owners can utilize estate planning tools to provide for their family’s financial security in the event of their incapacity or passing. By establishing trusts, they can designate assets to support their children’s education, healthcare, and overall well-being. 

Secure Your Business and Legacy: Contact Blacksburg Law for Expert Estate Planning Guidance 

Contact Blacksburg Law today for expert guidance in estate planning for small business owners. Our experienced team of legal professionals will work closely with you to develop a comprehensive plan that minimizes tax implications, ensures business continuity, and provides for your loved ones. Don’t leave your business and legacy to chance. Call Blacksburg Law now and gain peace of mind for the future.

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Estate Planning For Business Owners

The American economy depends on small businesses. The Small Business Association defines a small business as an independent business with fewer than 1500 employees. Interestingly, 90% of these businesses have less than 20 employees.

Regardless of size, small business owners need well-constructed estate plans which protect the business if the owner becomes incapacitated. Additionally, every owner should discuss and establish succession plan documents. Businesses may be tied up in court for months or years without proper legal papers. Therefore, small business owners should meet with an experienced, estate planning attorney to discuss, write, and file these vital documents.

Estate Planning Documents

All estate plans contain similar, basic documents . Small business owners require personal estate plans and business estate plans. Some of these documents include:

• Wills – If in when you pass away, this document dictates what happens with your business and the assets
• Financial Power of Attorney – If you become incapacitated this person may sign checks and handle financial matters.
• Healthcare Directives – Appoint someone to make medical decisions for you if you are unable to do so.
• Trusts – If you want to create special provisions to, for example, distribute financial assets during the course of someone’s life, a trust is a very useful tool.
• Life and Disability Insurance – An estate planning attorney can provide guidance on this matter including purchasing appropriate levels of this insurance.

Business Succession Plans

Succession planning deals with the future of the business after you pass away. In other words, who will be in charge? Depending on the size and scope of the business this may be quite complicated. Of course, sometimes a business ceases to exist when the owner passes away. In that case, the will and trust documents determine asset distribution. However, if the small business continues, then a legally drafted succession plan becomes necessary. In this scenario, estate and financial plans must be carefully coordinated. The following explains some of the ways an attorney may assist you with this process:

• Buy-Sell Agreement- The Buy-Sell Agreement (BSA) is a contract which states what happens to a business when one of the owners passes away, retires, or becomes disabled.  BSA’s may be structured in a variety of ways and require an experienced attorney’s expertise. It’s important to note, there may be funding constraints on these agreements. All financial issues must be considered when establishing this legally binding document.
• Tax efficiency planning- A solid succession plan considers the tax implications of transferring a business. An experienced estate planning attorney along with a financial advisor will guide you in these matters.
• Planning for short or long term disability- Your business must continue if you are disabled for any length of time. So, discuss this with your attorney as part of a “temporary” succession plan.

Succession Planning for E-Commerce Business

E-commerce presents a unique and unprecedented challenge for business succession planning. Unlike traditional brick and mortar businesses run by multiple managers and having multiple stakeholders, online and ecommerce businesses usually are primarily run by a single owner. This makes succession challenging to manage, as there needs to be planning ahead of time to select an individual to take the reins who not only has an interest in taking on the responsibility but also is qualified.

As these owner operated ecommerce businesses are often heavily labor intensive on a single person, it is harder to select a successor than it would be for a regular business operation. For example, startup businesses heavily reliant upon technical expertise and B2B partnerships can be cripled by poor succession planning, often causing them to close their doors despite years of previous success. It is vital therefore that e-commerce businesses set up a sound succession planning strategy to ensure the businesses continued success after the owner steps down.

Questions to Consider

A small business estate plan requires thought and planning. It helps if you know what you want before meeting with an attorney. However, the initial meeting provides the client and attorney an opportunity to communicate ideas and recommendations. The following questions offer a starting point for discussion.

What type of business do you own?

Are you the sole owner?

How many employees do you have?

Is this a family business?

Are you married? Do you have children?

Do you want your business to continue after your death?

Who do you want to run the business if you are unable to do so?

Do you already have a will, trust, financial power of attorney, or health directive?

Would you prefer to sell the business if you are unable to run it anymore?

Do you have any assets outside the business?

An experienced estate planning attorney will provide guidance and write all necessary legal documents to protect you and your business. Once the process is completed, discuss these papers with all affected parties.

Remember, when a small business owner passes away without necessary estate planning documents, the family and the business suffers. Sometimes, the tax implications cost your heirs a tremendous amount of money. Additionally, family members and business partners may spend countless hours, and financial resources in court. In fact, it may take years to settle the estate. So, contact an experienced estate planning lawyer and write your small business estate plan.

You might not want to think about estate planning, but as a financial planner, I know it's essential for small-business owners

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• Estate planning may not be a topic you want to think about, but it's essential for small-business owners.
• Besides a will, you may also benefit from setting up a revocable living trust.
• Be sure to update things like beneficiary designations if you have a major life event.

Estate planning is a very sensitive, emotional topic, but as a financial planner, I believe it's essential to discuss. Estate planning should be a top priority — especially for Black business owners seeking to build generational wealth and preserve their legacies. Your business, likely your most valuable asset, deserves careful consideration within your estate plan to ensure a smooth transition of ownership and management in the event of incapacity or death.

As a business owner, there are more complexities and nuances to consider as it relates to estate planning. Therefore, it is critical to work with a qualified estate planning attorney who can help you create an estate plan that protects you, your business, and your heirs. As you navigate the estate planning process, consider these important items tailored to small business owners.

1. Last will and testament

One of the fundamental pieces to an effective estate plan is the last will and testament. This legal document is inexpensive and simple to set up.

This document serves as your voice beyond the grave, providing instructions to the state probate court regarding the distribution of your assets and the care of your dependents upon your passing. Without a will, your assets will be distributed according to state inheritance laws, which may not align with your wishes. In addition to personal assets, you may include business assets in your will.

A will may be amended during your lifetime and should be reviewed periodically, especially after major life events.

One thing to note is that a will does not avoid the probate process. While it provides guidance for asset distribution, your estate will still go through probate.

2. Revocable living trust

Establishing a revocable living trust is more complex and expensive than a will. Nevertheless, the advantages a living trust offers, especially for business owners, make it very attractive.

As a business owner, it is likely that most of your assets are tied to your business. A revocable living trust provides you with more control over these assets. Through a trust, you can appoint a trustee and provide them with specific instructions on how and when you want your business assets distributed. Moreover, you retain the flexibility and control to transfer assets into the trust and modify its terms during your lifetime.

One significant advantage of a trust is the protection it affords your assets from the probate process. By bypassing probate court proceedings, your estate information remains private, and your heirs save considerable time and money.

It is always a great idea to regularly update the assets in your living trust, as your business assets will change as your business grows over time.

3. Financial power of attorney

In most cases, as a small business owner, you are your business. If you become incapacitated, you want to ensure that you have someone you trust to handle your financial affairs. It is essential that you do not delay this task, as you must be legally competent to assign this role to someone. A financial power of attorney is a legal document that authorizes your selected agent to act on your behalf regarding certain financial matters of your choosing. Some of these matters may include:

• Paying your business bills
• Making business bank deposits and withdrawals
• Collecting and managing your self-employed retirement benefits
• Filing your business and personal taxes

There are different types of financial power of attorney that will determine how much power your agent holds and when their responsibilities take effect.

4. Succession plan

It is one thing to decide on how you want your business interests and assets to be distributed to your heirs. However, it is also critical to have an exit strategy for what happens to your business if you die or are incapacitated. Who do you want to run your business in your absence? Or do you want someone to be in charge of selling your business for a fair price?

Without an effective succession plan, your heirs may be forced to undersell your business, undermining all your hard work. An established succession plan will provide guidance on how to manage, sell, or pass on your business to new owners.

When developing your business succession plan, it is critical to work with a team of attorneys and CPAs. Not working with experienced professionals could create a significant tax bill for your heirs, eating into their inheritance.

Life happens, so make sure that you start working on your succession plan now.

5. Digital estate planning document

A common blind spot in estate planning is the digital asset space. So much of our lives are digital, but we often do not consider what happens to our digital assets if we were no longer here to manage them. As a small-business owner, it is critical to create a plan for your digital assets after you are gone to prevent any financial and sentimental harm.

The first step is to create a list of all the digital assets that you own. Some examples include email accounts, social media accounts, bank accounts, credit card accounts, and cellphones.

Digital estate planning will make it easier for your heirs to access your digital assets as needed. For example, there may be unpaid business invoices or bills that need to be taken care of.

I recommend that you consult with an attorney, as laws and regulations surrounding data and digital assets are constantly evolving.

6. Reviewing beneficiary designations

Most assets should be included in a will or trust to ensure these assets are distributed the way you want. An exception to this is any account where you are allowed to designate a beneficiary.

Example accounts include retirement plans , investment accounts, bank accounts , health savings accounts, UGMA or UTMA custodial accounts , and life insurance policies. These accounts will bypass probate and go directly to the beneficiaries listed on the account.

Typically, you are allowed to designate a primary and secondary beneficiary. In addition, you are allowed to make changes to these designations at any point. It is a good idea to reevaluate your designations after major life events.

7. Life insurance for estate liquidity

As mentioned above, life insurance proceeds avoid probate because of the beneficiary designations listed within the accounts.

Life insurance is designed to fill in financial gaps for your heirs. This is especially important for a business owner. There may be unpaid debts, payroll, or operating costs that need to be paid. Life insurance proceeds will help ease the pain of your heirs while they devote their time to sorting out other details.

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Attorney search, search articles, find attorneys, why small business owners need an estate plan.

While an estate plan is important for everyone, it is especially important for small business owners. Planning allows you to dictate what will happen with your business after you die or are no longer able to manage it. It can help you avoid excess taxes and debts and facilitate your business’s continued success. 

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Before sitting down to start the estate planning process, you should think about your goals for the business. What do you want to have happen if you die or become incapacitated? Should the business continue with current partners or be sold to new owners? Should your family take over? Should the business be shut down? Consider your family dynamics when thinking about these questions. Once you have come up with your goals, you can create a plan to meet them. 

The basic building blocks of any estate plan include a will , power of attorney,  and medical directives . The will allows you to direct who will receive your property at your death while the power of attorney and medical directives dictate who can act in your place for financial and health care purposes. 

Following are some additional things a small business owner should consider as part of an estate plan: 

• Tax Planning . If your business is not a separate entity, you may want to consider ways to minimize estate taxes. The current estate tax exemption ($12.06 million in 2022) is so high that most estates do not pay any estate tax. However, a small business could put an estate over the limit. Also, the fact that the estate tax exemption is set to be cut in half in 2026 and that states have their own estate taxes means that tax planning is important. You may want to put your business assets into a trust or a separate business entity like a limited liability company to lower your estate tax burden. 
• Trust. A trust can be useful not only to reduce estate taxes, but also to ensure the continued running of your business if you die or become incapacitated. Because a trust passes outside of probate, the assets in the trust can be transferred immediately to the person you want to run the business without waiting for the whole estate to go through probate. In addition, if you become incapacitated, the trustee can continue to run your business without court involvement. 
• Buy-Sell Agreement . If you own your business with others, a buy-sell agreement can be very useful. Buy-sell agreements are used if one of the owners dies, leaves the company, or becomes incapacitated. It specifies who can buy an owner’s share of the business, under what conditions, and for what price. 
• Life Insurance . When you own a business, life insurance takes on new importance. A life insurance policy can ensure that your family continues to receive an income in the event of your death. It can also provide funds to keep the business running and be used to fund a buy-sell agreement.

Your estate planning attorney can help you come up with a plan to meet the needs of your business. Find an attorney near you . 

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Estate Planning for the Business Owner Series, Part 5: Estate Planning and the M&A Process

Once the business owner is ready to sell the business, there will be considerable time and energy focused on that goal. The client may engage an investment banker or business broker to assist in the sale, along with dedicated legal counsel specializing in mergers and acquisitions (“M&A”) for the transaction. The business’ accountant will play an important role as will the personal financial advisers. It is possible that these roles may change from the individuals currently serving in these roles given the complexity and dollars involved, which is a natural progression during a business sale.

The business owner may be an existing client who has already done some estate planning with the business interests. In this case, the estate planner will likely need to be involved to educate the M&A counsel on the trusts that have been put into place and provide documentation to be shared during the due diligence process. The client generally does not have to share the full terms of the trust with anyone. For many states, a certificate of trust can be provided in lieu of providing the full trust, which provides key details about the trust without disclosing the dispositive provisions. The buyer’s counsel may require a legal opinion from the estate planner as to certain aspects of the trust, or the client may agree to provide a full copy of the trust as long as there are strict limitations on how it can be shared among buyer’s counsel and advisers.

The estate plan of the existing client should be reviewed as well to confirm any updates to the documents in light of the sale. For example, testamentary plans may need to be simplified to remove complex business succession provisions once the business is no longer an asset owned by the client. Similarly, if not all of the equity is being sold, the estate planning counsel should confirm whether the business provisions in the client’s existing estate planning documents still make sense if the client is only a minority owner going forward.

If the business owner is a new client who has not done any estate planning to date and is only looking at it now because the sale is imminent, there may still be opportunity to plan. A third-party valuation may still be useful to transfer business interests ahead of a sale. Generally, transfers made prior to any signed letter of intent may rely on a third-party valuation, and there may be an opportunity to use a third-party valuation even after a letter of intent has been signed, especially if there is a long due diligence period or time before signing/closing. Even if there is not time to be comfortable using a third-party valuation, there may be other benefits to transferring equity at the third-party sale value prior to close. For example, transferring equity to a grantor trust would allow the sale proceeds to remain in the trust without reduction for income taxes. Trusts may also be established for income tax purposes, such as potentially limiting state income taxes, stacking benefits for qualified small business stock, or to engage in an installment sale transaction to limit an immediate substantial capital gains tax liability upon the sale.

If the business owner will be retaining any rollover equity, there may also be a new opportunity to plan with that equity. For example, a client may not be ready to part with any of the cash sale proceeds at closing, but may be comfortable transferring part of the upside equity that the client will be retaining for that second bite at the apple. In that case, the client can use the closing valuation for purposes of the rollover equity without needing a third-party valuation, and may transfer all or a portion of that equity to family members or to a trust for their benefit.

If a client is not comfortable with moving any of the rollover equity now, the estate planner should still be involved to ensure that the equity agreements going forward allow for the transfer of equity for estate planning purposes and to ensure that the controlling owners will be comfortable with allowing a third-party valuation for that purpose. It is best to clarify and negotiate those provisions now while the seller and buyer are still in a good place. It is not uncommon for a sale to occur and the buyer and former owner to have significant disagreements whereby neither party will be willing to assist the other with personal matters unless they are obligated to do so.

Finally, as the client looks to minimize taxes for the year of the sale, the client may want to explore charitable gifting options with the estate planner. This may be as simple as making gifts to public charities or establishing a donor advised fund, or may involve more complex charitable planning like the establishment of a private foundation or split-interest charitable trusts. Even gifts to public charities may involve negotiating gift agreements and things like naming rights or other acknowledgments.

While the client may be prioritizing the sale transaction, there are still many items that can be implemented or that need to be reviewed from an estate planning perspective before and during the year of the sale of the business.

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13 Smart Estate Planning Moves

Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.

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Several years ago, Kelley Brooks’s husband, Chris, who was being treated for hypertension, died in his sleep. Like so many other couples in their 40s, they had talked about estate planning but never got around to it. “You think you have forever to do all that, but you don’t,” says Brooks of Bellingham, Mass.

Experts hear similar stories all the time. “People often underestimate how much it will cost if they don’t plan,” says Renee Fry, founder of Gentreo , an online estate-planning company. For people nearly or newly retired, who potentially still have decades ahead for their assets to compound and grow, estate taxes are a huge concern.

The generous estate tax exemption , now a whopping $13.61 million (up from $12.92 million last year), will soon be on the chopping block. The exemption is set to expire at the end of 2025, which would drop the base estate exemption amount down to $5 million (adjusted for inflation) in 2026. However, the large exemption has lulled many people into thinking they shouldn’t worry about estate taxes or other threats to their money. Still, they should, says attorney Martin Shenkman, a veteran estate and tax-planning attorney in the New York area.

“Anybody with wealth needs to plan,” says Shenkman, citing looming deficits that could hasten a change in the exemption amount. Estates with values exceeding the exemption amount by more than $1 million are taxed at $40%, and some states also levy an estate tax. He says if the gift exemption is cut substantially, it will shut down many ways people reduce their taxable estates.

Asset protection strategies that benefit you during your lifetime can also double as estate tax moves that preserve wealth for your heirs, he says. “I’ve been jumping up and down about this because, in difficult economic times, you tend to see more litigation,” says Shenkman, who uses several types of trusts to move money out of clients’ taxable estates. “When people are hurting, they look at every option to get money.”

So, how can you save as much as possible on fees and taxes and preserve the most for the people you leave behind? Consider these 13 estate-planning moves, which may be as simple as designating a different IRA beneficiary or as complex as setting up a trust.

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1. Rethink IRA investing strategies

Passage of the SECURE Act in 2019 upended estate plans by forcing most non-spouse beneficiaries of traditional IRA s into a 10-year window for distributing assets. Before the law took effect this year, those beneficiaries could “stretch” the distribution of an inherited IRA over their own lifetime. Now, some families must rethink how they leave assets, particularly to children and grandchildren. (Minor children have until they reach the age of majority before the 10-year clock for distributing assets starts ticking.)

Beneficiaries such as siblings or partners who are not more than 10 years younger than the account owner can still spread the distribution based on their life expectancy. People with disabilities also are exempt from the new rule. That could argue in favor of leaving a traditional IRA to them and other assets to children, the reverse of previous advice.

“Previously, people wanted to leave money to a grandchild and spread those [distributions] over 60 or more years. Now the window is different,” says Eric Bronnenkant, head of tax for Betterment.

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2. Sneak in a Roth conversion

Due to the recently enacted  SECURE 2.0 Act , the required minimum distribution age rose from 72 to 73 in 2023 and will rise again to 75 in 2033. If you’re younger than the RMD age, you could take a voluntary distribution and convert it to a Roth IRA, Bronnenkant says. It’s a smart estate-planning move. Although non-spouse beneficiaries such as children and grandchildren will still need to deplete the account within 10 years, Roth distributions are tax-free.

3. Leverage the annual gift tax exclusion

Every year, anyone can give anyone else, or multiple people, a gift up to the annual gift tax exclusion amount — $18,000 in 2024. Couples can each give someone up to that limit, for a combined total of $36,000, without incurring gift tax. Go over this amount, and you’re required to file a gift tax return, with any amount in excess applying toward your lifetime exclusion.

Usually, the annual gift tax exclusion is the first thing we talk about “because it has no impact on the estate tax exemption, so you’re basically saving 40% on those gifts” if you’re going to be subject to the estate tax, says Bronnenkant, referring to the top marginal estate tax rate. “Leveraging the annual exclusion every year is fantastic.”

Even better, he says, is the 529 college savings plan kicker, which allows a gift giver to superfund five years of gifting into one. This means you can contribute up to $90,000 at once to a plan, effectively spreading the exclusion over five years. If you’re married, the limit per couple is $180,000 per beneficiary. On the downside, you can’t spread the deduction over multiple years on your state taxes, or make additional gifts to the same person during the five years. And if you die during the five years while you’re spreading the exclusion, only a prorated amount applies to your estate. But Bronnenkant still thinks it’s a great deal for many people.

4. Use up your lifetime gift exemption early

If you think gift and estate tax limits are heading lower, Bronnenkant suggests using up your lifetime gift exclusion now.

“If you have an asset you think will appreciate and want to leverage today’s exclusion because you’re concerned it’s going lower, the IRS has given guidance that indicates you won’t be penalized for using up your exemption while you’re alive,” he says.

If you hold onto an appreciated asset and die when the exemption is lower, your estate tax will be higher because more of the estate will be taxable. So what happens if you use up the exclusion and Congress doesn’t lower the lifetime exemption amount? You’ll still benefit because there is less in the estate that can be taxed when you die. There’s a tradeoff, however: The cost basis of gifted assets carries over to the person receiving the gift. 

“If you were going to end up being below the estate tax exemption in either scenario, you may be better off holding onto the asset until death so [your heirs] can benefit from the step-up in basis,” he says. Plus, you’ll have more security in case you need the money. “I would prioritize economic security currently over a potential tax benefit in the future that is uncertain.”

Another gifting strategy that doesn’t sacrifice economic security: Giving appreciated assets, such as stocks, to an ill spouse who is expected to die sooner than you will. Have your spouse name you as a beneficiary, putting you in line for a stepped-up basis at your spouse’s death.

"The IRS is hip to this strategy, and they’ve said the person who receives it must have it for at least a year,” he notes. And remember, the “ill” spouse could outlive the other.

5. Pay medical or education expenses directly

Another way to save on future estate taxes is to write checks for someone else’s medical expenses or education. Paying medical bills or tuition — for preschool through graduate school — doesn’t count toward the annual exclusion or the estate tax exemption, provided the checks are written directly to the health care provider or school, Bronnenkant notes.

“You can keep writing checks all day long and it reduces the taxable estate while making someone else very happy they don’t have to pay,” he says.

What if we give away too much? “It’s a fair question,” Bronnenkant says. He stated that “a lot of people are re-evaluating their charitable contributions and their gifting to grandchildren to see if those are sustainable, and people are at least considering cutting back temporarily.”

6. Build an irrevocable trust for your spouse

Many have a similar unease with irrevocable trusts because, by definition, they mean largely giving up control of assets. But creating one now could help you take advantage of today’s high exemption, Shenkman says.

“If you move some money into a trust today, you can still benefit from [the exemption.] Spouse 1 puts money into a trust for Spouse 2 and all descendants,” he says. “You still as a couple can access the money.” Staying under the exemption amount gets money out of an estate now without gift tax, and you can still have some access to the funds through a spouse with the rest going to other heirs.

The trusts he’s talking about are called spousal lifetime access trusts. SLATs are irrevocable trusts with a spouse as beneficiary and perhaps children or grandchildren as remainder beneficiaries. While you’re still alive, your spouse can tap the trust for health, education and general living expenses, which indirectly benefits you. Meanwhile, your spouse can set up a SLAT naming you as beneficiary, but the trusts cannot be identical, or the IRS may come knocking.

Shenkman frequently creates SLATs for clients and has even established them for himself and his wife. “We’re both [each other’s] beneficiaries, and it has been untouched for over eight years,” he says, though if they end up needing the money down the road in retirement, it’s there. Generally, longevity helps prove the trusts weren’t thrown together quickly to hide assets from creditors.

Shnkman recommends hiring an independent trustee to oversee distributions to avoid a legal challenge to the trust. And there are other caveats, including a cautionary note about dumping a big portion of your retirement wealth into them.

SLATs can be useful, but don't go overboard. A couple shouldn't stuff a SLAT so full of funds that they can't maintain their lifestyle, according to PNC Insights , a wealth management publication. That’s because, at their core, SLATs are irrevocable. Thinking you could be heading for a gray divorce ? Steer clear.

As with other more complex trust strategies discussed here, it’s important to consult an experienced attorney about these ideas.

7. Bypass the need for a portable exemption

Surviving spouses can choose to carry forward any remaining estate tax exemption unused by their deceased spouse, but it may not be the best strategy if you have appreciated assets, Bronnenkant says.

In that case, you may be better off preserving assets for heirs with a bypass trust, which is similar to a SLAT except it is funded at the first spouse’s death. The second spouse retains limited access to the funds inside the trust, with expenses for health, education, maintenance and support generally approved. When the second spouse dies, remaining heirs simply assume control of the appreciated assets, which are outside of the second spouse’s taxable estate.

Some blended families use these trusts to provide for a surviving spouse and then eventually for children from a previous marriage. The tax savings happen when the second spouse dies, as the funds in the bypass trust go directly to the children, avoiding estate tax. They don’t get a stepped-up basis, but even the top marginal capital gains rate is lower than the federal estate tax rate, Bronnenkant says.

8. Safeguard assets from creditors

Uncle Sam isn’t always the biggest threat to preserving assets for heirs. If you’re a doctor, board member or an owner of a closely held business who wants assets protected from lawsuits and estate taxes, domestic asset protection trusts are a way for you to move money out of the estate and still be able to access it, Shenkman says.

You can create these irrevocable, self-settled trusts in 20 states. Although the money in them is out of the person’s estate and protected from creditors, the person funding the trust can also be a beneficiary.

“We have the most litigious society in history now,” Shenkman says.

9. Manage assets with revocable trusts

Some experts, including Shenkman, believe revocable trusts are a lot like annuities — more of them are sold than bought. He says they are often sold to clients as a blanket strategy for avoiding probate and cutting taxes, but the fact that they are revocable renders them ineligible for a lot of estate tax strategies. And in many states, probate isn’t that onerous. So why does he still use them? To manage assets as clients age or have health issues.

“It’s easier as successor trustee to take charge of assets in a revocable trust than as an agent under a power of attorney,” he says. Easy typically means less costly, too, because you have professionals on the clock for shorter amounts of time. A revocable trust with a separate tax identification number can help avoid scams on seniors as well, he says, preserving even more money for potential heirs.

10. Plan for Medicaid and special needs

Some people bristle at the term “Medicaid planning” because it suggests that someone is trying to cheat the system by preserving assets that could have been spent before Medicaid kicked in. But the rising cost of nursing home care , assisted living facilities and retirement homes means many middle-class households would be wiped out by a long stay, impoverishing the spouses of those in care.

“I look at it as long-term care cost planning,” says Regina Spielberg , an elder law attorney and partner with Schenck, Price, Smith & King LLP in Paramus, N.J. “For middle-class people, if one or both members of a couple need long-term care services, their assets are quickly being consumed.”

Medicaid has a five-year lookback period for examining income sources and transfers out of an estate. If the transfers aren’t to spouses or children with disabilities, it’s a problem, Spielberg says. She often helps clients construct a portfolio that can be drawn down to pay for the person’s care while safeguarding some assets for the spouse.

The best ways to do that vary by state. For New York clients, she often creates income-only trusts that let the spouse of someone on Medicaid stay in their home. These irrevocable trusts prevent assets from being sold to pay for care costs. Her New Jersey clients, meanwhile, typically use life estate deeds, which transfer property to heirs while bypassing probate, she says.

Special-needs trusts can also help you protect some money for loved ones. Shortly after her husband, Michael, 42, was struck and killed by a car in 2015, Melinda Campbell set up a special-needs trust for one of her children, who has a disability. The trust can provide income for her son without affecting his eligibility for public assistance.

“We [she and Michael] had met with the lawyer and received life insurance recommendations, but nothing had been finalized” before he died, she says. Even so, she says that directing a portion of her modest estate in this way will provide some peace of mind and cost savings.

11. Reduce fees for a simple estate

With most attorneys charging fees of several hundred dollars to about $2,000 for basic estate planning , you can pocket most of that money by going online. In addition to Gentreo , players include Trust & Will , Rocket Lawyer and Legal Zoom .

Just be sure to shop carefully if you go this route, as the capabilities and customization vary. Some of them offer trust preparation while others don’t.

“A will is going to protect families, but some people feel they need that revocable trust,” says Gentreo’s Fry.

High-net-worth families with complex situations, such as multiple homes or a need for asset protection, will still need a lawyer to set up some of the other trusts discussed in this article.

12. Clean up investment clutter

Settling the estate is another place to find ways to keep fees down. On the time-is-money front, someone with accounts spread over multiple banks and brokerage accounts is making things difficult not only for themselves but especially for heirs.

“When [a person like this] dies, someone’s going to have to find all these accounts, figure out the basis in the stocks, and I’ll bet there are stock and bond certificates stuffed in a safe deposit box, "Shenkman says. "That, without question, is going to be a more costly, complicated estate settlement than if he had consolidated everything at one institution with everything saved on a laptop and backed up.”

13. Consider hiring a professional to serve as trustee

Litigation also costs more, so don’t forget the power of peace when trying to preserve money for heirs, experts say. To that end, consider hiring a professional to serve as trustee not only to relieve heirs of time-consuming duties but also to help avoid direct conflicts that tend to occur, for example, when one sibling is in charge of decision-making.

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Janet Kidd Stewart created The Journey , a nationally syndicated personal finance column that ran for more than a decade in dozens of U.S. newspapers. As a reporter for the Chicago Tribune and Chicago Sun-Times , she covered banking, derivatives, markets and economics. She holds bachelor's and master's degrees from the Medill School of Journalism at Northwestern University. Widowed suddenly in 2013, she joined online grief groups and began talking with other widows about survivor benefits and adjusting to a new financial reality. Now living and working in Minneapolis, she is compiling those stories, and her own, into a forthcoming book.

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Mayor Wu is at odds with business leaders over property tax plan

W ord began to circulate around town in February that Mayor Michelle Wu might try to shift more of Boston’s tax burden onto commercial properties, to avoid a big hike on homeowners and renters.

Would this wonky debate over tax reclassification stir up trouble among developers and office landlords? Of course. But what about the broader business community? That remained an open question.

Not anymore. Last week, the Greater Boston Chamber of Commerce sent a sharply worded letter to the City Council slamming Wu’s plan, which has evolved from backroom discussions into a formal legislative proposal. The bottom line from chamber CEO Jim Rooney: Pare back the 8 percent increase in spending Wu has suggested for Boston’s next fiscal year before imposing a rate hike on commercial real estate.

The Greater Boston Chamber does not typically get entangled with City Council deliberations, and rarely, if ever, makes such strong pronouncements about city budgets. Normally, the chamber focuses its lobbying on Beacon Hill, not City Hall. And Rooney happens to be one of the few prominent business leaders who have regular, one-on-one talks with Wu. He still has an open line to the fifth floor, unlike all those developers who saw that access diminish once Wu took office.

Taking on Wu in such a bold manner says something about how strongly Rooney’s members feel about this arcane matter of municipal tax policy. It also says something about the broader business climate here: Despite low unemployment, fears abound among local business leaders that Greater Boston is losing its competitive edge in a super-mobile, work-from-anywhere, post-pandemic world.

In fact, that same threat to Boston’s competitiveness is also prompting Wu’s reclassification push. Currently, owners of commercial property in Boston pay a tax rate that’s 2.5 times higher than what owners of residential property pay. Wu’s plan could push that multiple closer to three times. Wu and her advisers worry that a sharp drop in the values of office buildings driven by stubbornly high post-COVID vacancy rates will cause the tax money collected from commercial buildings to plunge. That in turn would require homeowners and apartment landlords to pay more to make up the difference — making it even more expensive to live in this pricey city and potentially driving residents away.

City officials say residential tax bills rose 9 percent a year, on average, for the past five years. But if Wu’s effort fails, under one plausible scenario, the average tax bill could rise 16.5 percent in early 2025 — which just happens to be an election year in Boston. Uh, oh.

To pull off the tax change, which would sunset after five years, Wu still needs City Council approval . That’s no sure thing; a second hearing is planned for May 30. Then she needs the House and Senate to go along, not to mention Governor Maura Healey. Reception at the State House so far has been tepid at best.

Wu did line up housing advocates and other supporters when she officially unveiled her tax plan in late March, after previously floating the concept with business leaders.

But critics have been louder. NAIOP Massachusetts, a trade group for office landlords and developers, is steadfastly opposed. No surprise there. The business-backed Boston Municipal Research Bureau launched its own push against Wu’s plan, arguing for options such as trimming the budget and dipping into Boston’s $1.2 billion rainy day fund. Again, no surprise: More than a third of its board members have ties to the real estate industry.

Rooney’s board, meanwhile, has a much more diverse membership, a sign the unrest has spread beyond commercial real estate interests. Rooney doesn’t mention Wu by name in his letter to the council. But he rips apart her proposal by calling for a budget with “modest spending growth” in line with inflation — less than half the 8 percent Wu proposed — and by noting that increasing the commercial property tax burden “will place further strain on our already struggling downtown businesses” as landlords pass on the costs to tenants in the form of higher rents.

No one is calling for massive cuts, Rooney said in an interview. But many chamber members were not happy to see Wu’s tax plan emerge within days of an 8 percent budget increase. That combination, Rooney said, was “frankly head scratching to some people.”

Rooney says he’s not worried about losing access to the mayor. In fact, he says he recently spent a half hour on the phone talking to her about this issue. The mayor, he said, is in a tough spot. Rooney understands the desire to protect residential taxpayers from a sharp increase. The business leaders who are upset, he says, simply want to see more evidence of the discipline that they would apply to their own companies.

Officials in the Wu administration are pushing back . They note that much of the 8 percent budget hike is due to costs that are largely locked in — with roughly one-third, around $100 million, tied to pay raises for city employees, and $60 million more from pension and debt obligations. Another $40 million or so is zero-sum bookkeeping, as money held by the Boston Planning & Development Agency gets shifted into the general budget.

City officials also point to rising revenue from meals and hotel taxes, as well as more interest revenue from the city’s savings. And they say they’re simply trying to live within the bounds of Proposition 2½ — the state law limiting the annual growth of a community’s property tax revenue to 2.5 percent — without sharply driving up residential bills. Even with the proposed shift, they say, most older office buildings would probably see their tax bills go down, as a drop in property value mitigates any rate increase. The mayor could opt to not seek the full 2.5 percent, but her aides say that’s never happened before in Boston, and such a cut may end up baked into the budget for years to come.

Wu’s approach to commercial real estate and development has maddened many in the sector — with new environmental and affordable housing mandates, as well as talk of rent control (unlikely to be approved at the State House) and a new transfer tax on high-dollar property sales (more likely). Reclassification just adds to the pile. All the while, high interest rates keep most new construction on hold.

But it’s about more than real estate, as the chamber’s engagement shows.

Most employers are either tenants, property owners, or both. While their overall property tax bills might still drop, Wu’s plan, to many, feels like a business tax hike.

That perception alone is meaningful, especially in a city that’s still trying to regain its swagger after the pandemic changed office life, perhaps forever.