Estate planning for business owners: How can I plan for my legacy and my business?

Key considerations for building an exit strategy that gives you the future you want – while potentially minimizing estate taxes, disputes among heirs and disruptions to your business.

Key takeaways

Without a plan for the transfer of assets and management control, your company can be vulnerable to operational disruption, debilitating tax obligations or internal conflict among heirs.
An important starting point is a thorough inventory of your business assets and documents, including ownership structures, real estate, intellectual property, insurance policies and retirement accounts.
If you’ve been living on the income from your business, you’ll need a detailed plan to invest the proceeds from the sale of the business to replace your compensation.

For many successful business owners, the daily demands of running a company leave little time to think about what happens next. In fact, according to Forbes,¹ 85% have business estate plans that are outdated or insufficient. Yet, allowing planning for the future of your business to slip onto the “someday” list of priorities can have serious unintended consequences, putting your hard-earned legacy at risk.

Why estate planning is essential for business owners

While most people think of tools like wills, trusts and inheritance tax in the context of preserving and passing on personal wealth after the owner’s death, estate planning is just as critical in protecting and safeguarding business assets. Absent a clearly articulated, legal plan for the transfer of its assets and management, your company can be vulnerable to operational disruption, debilitating tax obligations or internal conflict among heirs left in the dark about your wishes.

For example, your long-established plan for a son or daughter to take over running the business could be derailed if heirs disagree over control, or estate taxes force its sale. (Inheritance taxes on value more than the federal estate tax exemption — $13.99 million for individuals in 2025 — can go as high as 40 percent.) A well-crafted estate plan, however, will include a business continuity plan spelling out who will step into decision-making roles, as well as planning tools that could include trusts, family limited partnerships and gifting strategies, that can help minimize taxes or spread them out over time.

Ensuring a smooth transition

Often, business owners view estate and succession planning as two separate concerns, but in truth they’re deeply intertwined. Both involve the transfer of control and ownership of a large, complex financial asset. Taken together, each informs the other, setting a roadmap for the future of the business that you built after you’re no longer running it.

While the idea of planning an exit strategy can feel daunting, business owners can ease the process by engaging expert advisors to guide them through these five steps:

Define your vision. Since every business and family situation is unique, your intentions for both your family and the future of your company will help shape your exit plan. Whether your vision entails an IPO, a sale or transfer of ownership interest to relatives, you’ll need time and planning to turn it into a reality. Owners preparing for a successful sale will need to get their financial records in order and monitor market fluctuations, whereas those hoping to keep the business in the family will need to gauge the interest of heirs and ready them for the responsibilities of business ownership.
Assess and organize your assets. Conduct a thorough inventory of your business assets and documents, including ownership structures, real estate, intellectual property, insurance policies and retirement accounts. This provides a clear picture of what’s at stake and highlights any areas of risk or complexity that you may need to address. It will also inform assessing the value of your business, a critical step in transition planning.
Talk to your family. Sit down together for an open conversation about your vision for the business — and your heirs’ expectations. You may find that your children have no interest in running the company that you planned to pass down to them. An honest discussion will ensure that everyone is aligned on your plan or reveal any gaps that may need to be addressed.
Protect personal and business assets. Your financial team can help you consider strategies to reduce risk, legal liability or taxes. For example, structuring your business as a holding company or limited liability company (LLC) may help shield personal assets from business debts or liability in the case of lawsuits. Buy-sell agreements that detail how partnership shares of a business will be transferred if an owner dies or leaves the business can reduce the risk of disputes or forced sales. And various trusts can be used to smooth ownership transitions by bypassing probate or to protect assets from estate taxes or creditors. Each owner’s situation might be best served by a different set of tools and solutions.
Optimize your exit strategy. How you approach moving toward retirement can have profound future tax and financial implications. For example, if you’ve been accustomed to living on the cash your business generates, you’ll need to consider how to invest the liquidity generated by selling that business. Working with a team of financial advisors, estate attorneys and tax professionals will help you realize the maximum value for your business and put that money to work toward meeting your financial goals, while ensuring the continuity of your business.

Elements of an exit plan: A guide to key estate planning tools for business owners.

Discuss these with your attorney, tax advisor and financial advisor

Documents how assets are to be distributed following an owner’s death and names individuals or entities you would like to serve as a guardian, executor or trustee. A will does not control how all assets are distributed: Those that are jointly held with the right of survivorship automatically pass to the survivor, and beneficiary designations, rather than your will, control how IRAs and other retirement plan assets are distributed.

Transferring shares in a business in amounts under the gift tax threshold enables an owner to gradually transfer business ownership to family members, reducing the value of his or her taxable estate. Gifting also removes future appreciation of those assets from the eventual estate. In 2025, individuals can gift up to $19,000 per recipient without triggering gift tax, and married couples can give up to $38,000.

Q&A: Understanding business estate planning opportunities and pitfalls

Katie Carlson, Head of Wealth Strategy at Bank of America Private Bank, leads a team of wealth strategies advisors who work closely with business owners on complex wealth planning considerations. In this conversation, she shares her insights on business estate planning opportunities and pitfalls.

It’s more an omission than a misstep, per se. A lot of business owners are so focused on growing their businesses that succession and wealth planning fall on the wayside. In other cases, it’s emotions — resistance to the idea of letting go someday — that make them postpone having conversations with heirs and taking action. Luckily, what I’ve seen time and again is that once owners dive in and commit to the process, there’s a sense of relief, accomplishment and even excitement about the future.

Every business and family is unique, so I start by spending time getting an understanding of the business, as well as family members’ expectations. The first premise of an estate plan is control — you want to be in the driver’s seat about to whom and how your assets will pass. We take all those elements into consideration in helping the owner design a transition plan that is both grounded in reality, fiscally sound and meets the owner’s vision for preserving their legacy.

I look for gaps, such as the lack of clear succession and estate plans — or lack of communication about those plans to family members and business stakeholders. Clarity about what everyone wants and expects is essential. For example, an owner may have always intended to pass the business down to their children but never shared or documented who within the family would manage the business or how that ownership will be divided among them. Or the plan was always to sell, but the kids are blindsided when the time comes. These unspoken assumptions can lead to confusion and conflict — or even jeopardize the future of the business if they aren’t addressed.

Assessing the ownership structure and existing legal documents is also key. Many owners draft documents when their business is formed and never revisit them. Those documents may still list a former spouse, neglect to include a youngest child or be too simplistic for a business that’s grown significantly since formation. Life events, developments in tax law, business expansion and other changes can all warrant updates. An estate plan is not a one-and-done exercise; it should be revisited regularly to see whether changing circumstances warrant an adjustment.

From a tax perspective, I look at the potential financial impact of a transaction or ownership transfer and analyze how different strategies or techniques such as trusts, family limited partnerships or gifting shares over time might be employed. We always want to make sure that plans that ensure continuity are in place. Or if business owners are entering a transaction, they have a full understanding of the tax ramifications and have taken steps to maximize value.

Estate planning — clarifying your intent for the disposition of your assets after you’re gone or no longer able to communicate those desires — should always be part of a well-rounded overall wealth management strategy. This is particularly true for business owners, for whom personal and business finances are inherently intertwined. For example, if a business represents a large percentage of an owner’s net worth, the estate plan needs to account for that concentration risk so that if something happens to the owner, there’s a mechanism in place to protect both the business and the family’s financial stability.

Estate planning can also address tax considerations. As with the sale of a business, strategies like gifting shares over time, setting up trusts or restructuring the company as a partnership in advance of a transaction may significantly reduce estate tax exposure and maximize the value of wealth being transferred to heirs.

People don’t always understand that succession and estate planning isn’t just for uber wealthy individuals with complicated businesses holdings. Virtually any business owner will benefit from a well-structured plan that provides for continuity if he or she steps away unexpectedly and ensures that key transitions are handled in a tax-efficient, legally sound way.

And the sooner, the better — don’t feel you need to wait until your business hits a certain threshold or you know all the answers about your future plans. An experienced advisor can help you explore decisions like whether you want to pass the business to family, sell to a third party, transition it to employees or some combination of these and how best to pursue that goal. He or she can also facilitate family discussions about the future. The picture may be blurry now but starting the conversation and expert guidance will help you bring it into focus.

Starting the conversation

The 58-year-old founder of a successful specialty beverage company wasn’t ready to retire but wanted a plan in place in case something happened to him. He was starting to think about the future of the company he had built —which he estimated was worth several million dollars — as well as that of his two adult children, who both held key roles in the business. His daughter led sales and marketing, while his son handled finance. The family had never sat down and talked through what a leadership transition might look like — nor how the company’s ownership might be structured.

The founder called his private client advisor to ask for help thinking through his options. The advisor enlisted the help of a wealth strategist and met with the man and his children to talk about the opportunities and drawbacks for different approaches. After considering their options, the family came to a consensus: The founder would retain a controlling interest in the company but begin transferring ownership stakes to his children with the long-term goal of them running it as partners.

The Bank of America team, including a relationship manager, advisor and a wealth strategist, guided the founder through the process of assessing his company’s worth and developing a succession plan.

The plan called for using a trust to transfer minority ownership stakes to the children — preserving control while reducing the size of their taxable estate. The Bank of America team worked with his attorneys to update all estate documents and created a buy-sell agreement setting forth how shares would be transferred to ensure a smooth transition if either of the kids chose to leave the business.

Today, the whole family feels prepared — not only for the founder’s retirement, but for the future of the company and their own financial well-being. The planning process enabled the founder to turn uncertainty into empowerment — and ensure his heirs would benefit from his legacy.

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¹ Matthew Erskine, “The Danger Of Declining Estate Planning Rates,” Forbes.com, Mar. 20, 2024